Monday Morning Quarterback

Written by Lloyd Segal Posted On Monday, 21 August 2023 00:00

State: Alabama
SOLD: 2

Monday Morning Quarterback

(Monday, August 21, 2023)

It’s only been one week since the wildfires but already aggressive investors are descending on Maui. Investors and real estate agents eager to capitalize on the catastrophic Maui wildfires have been calling affected landowners with speculative offers. These attempted land grabs are among the latest reports of unsavory behavior in the wake of the deadliest U.S. wildfire in more than a century. Reports of annoying calls come as crews work to contain the blaze, which has resulted in an estimated $6 billion damage, countless injuries and over 110 confirmed fatalities, according to NBC News. At least 2,200 structures across the island (the majority of which are residential homes), have been destroyed. In a video posted to Instagram, Kāko'o Haleakalā, an organization focused on preserving lands and native species in Hawaii, encourages victims to report the callers’ identities and business affiliations. Predatory calls have also captured the attention of Hawaii Gov. Josh Green, who said in a news conference he is attempting to place a moratorium on out-of-state buyers. In the meantime, nonprofits are providing resources so families aren’t forced to act out of desperation, said Sterling Higa, executive director of Housing Hawaii’s Future. “ These displaced families are in an incredibly vulnerable position,” Higa told the island’s local ABC affiliate. “They may not have money to cover all of their essentials. So these investors show up and offer them money to take their land from them. And that is, in their situation of desperation, a very tempting offer.” There is a time and place for everything, but right now Maui is not the time nor place for investors.

Mortgage Rates Could Hit 8%. With mortgage rates firmly above 7%, homeownership has become much more expensive. But rates could go even higher? Three economists recently told CBS MarketWatch that if our economy continues to show signs of strength, and the Federal Reserve hikes its benchmark interest rate once again, mortgage rates could shoot up to 8%. Remember, you heard it first. If the 30-year mortgage interest rate reached 8%, there would be serious consequences for the housing market. Home builders are reporting a drop in buyer traffic as those rising rates rattle their customers. But experts also stressed that the U.S. economy is showing early signs of cooling, and that the rate of inflation is easing. That could lead to a slowdown in mortgage rates. But such forecasts are not a guarantee, as last Tuesday’s stronger-than-expected U.S. retail sales figures suggests. But, really, how high can rates go? Even though the 30-year fixed mortgage rate was averaging 7.26% as of last week (the highest level since November 2022), economists say rates could go up further. As of Tuesday afternoon, the yield on the 10-year Treasury note was above 4.2%. “Mortgage rates could rise significantly if global investors demand higher yields for fixed-income assets, like treasury notes,” Cris deRitis, deputy chief economist at Moody’s Analytics, told MarketWatch. Currently, the spread between the 30-year fixed-rate mortgage and a 10-year Treasury bond is around 300 basis points, which is “elevated and highly unusual,” he said. What happens to housing if mortgage rates surge? At 8%, the housing market will re-freeze, with fewer buyers and far fewer sellers. He notes that the monthly mortgage payment for a median-priced home at the prevailing 30-year mortgage rate has risen from close to $1,100 per month in January 2019 to over $2,100 today. “At 8%, the monthly payment would rise to over $2,300, excluding an even larger number of potential buyers with above-average incomes,” deRitis added. So who would be able to buy and sell? Cash buyers. “They tend to be older people like baby boomers who own their homes free and clear,” he added. “If they live in more expensive areas, like anywhere in California, they can sell their home and walk away with in excess of $500,000. And that in some markets buys them two homes.”

Builder Confidence Falls For First Time In 2023. Builder confidence waned in August as the 30-year mortgage rate surged, dampening U.S. home-buying interest. Despite a persistent shortage of resale homes, builders lost confidence this month amid declining customer traffic from higher mortgage rates, as well as challenges with the construction process. Buyers are getting spooked by rising interest rates, which pushed the National Association of Home Builders’ (NAHB) Monthly Confidence Index down 6 points to 50 in August. This is the first time in eight months that sentiment has dropped among builders. A year ago, the index stood at 49. Builders are turning to sales incentives to bring buyers back as high mortgage rates increase the cost of purchasing a home. The share of builders cutting prices to boost sales rose for the first time in five months to 25% in August, the NAHB said. The average price cut was 6%. About 55% of builders were also using incentives (other than price cuts) to improve sales in August. The three gauges that underpin the overall builder-confidence index fell:

1. Current Sales. Builders were pessimistic about current sales conditions. The gauge fell by 5 points.

2. Future Sales. They were downbeat on future sales. The gauge fell by 4 points.

3. Prospective Buyers. Builders were also seeing a drop in the traffic of prospective buyers. The gauge fell by 6 points.

New construction is seen by builders as the solution to the current inventory crunch, as resale home listings are few and far between in many parts of the nation. But even builders can’t escape the impact of stubbornly high mortgage rates. Builders are also reporting challenges finding labor, buildable land, and shortages in construction equipment, which resulted in their downbeat August outlook.

Ten Best States For Flipping Houses. House-flipping can be a lucrative business, but especially if you choose the right location. Joybird, a handcrafted furniture company, analyzed 11 factors in real estate markets across the United States to uncover the best locations to maximize the return on your investment in flipping houses. The factors used were determined using data from Zillow, Redfin, and the U.S. Bureau of Labor Statistics. They include: median home price, the average price of fixer-upper homes, number of fixer-upper homes, median days on the market, home flipping gross ROI, property tax rate, average kitchen remodeling cost, average bathroom remodeling cost, number of real estate agents, number of construction managers, number of construction laborers. Five out of the top 10 states on Joyride’s final ranking are located in the South, indicating this region of the United States is ideal for home flipping. Who’s number one? You guessed it. Louisiana is the best state for flipping houses. The state scored a 41.1 out of 50 in Joybird’s report. The average price of fixer-upper homes in Louisiana is $196,763. The state also offers a large construction labor force, the report states. The flipping gross profit in 2022 was $75,000 and the gross ROI was 55.6%, which equates to a 3% increase since 2021. One special advantage that Louisiana offers those looking to flip homes in the state (besides drinking hurricanes in New Orleans) is a low property tax rate of 0.55%, which is 0.44% lower than the national average of 0.99%.

1. Michigan

2. Alabama

3. Delaware

4. Ohio

5. Pennsylvania

6. Maryland

7. Mississippi and Virginia (tie)

8. Mississippi and Virginia (tie)

9. Florida

Tarek El Moussa Evicts Residents From North Hollywood Apartments. HGTV real estate star Tarek El Moussa can’t do anything right. He needs a publicist. For example, El Moussa has called on investors to partner with him on what he calls a once-in-a-lifetime housing development in North Hollywood. In a pitch video for his proposed building dubbed, NOHO138, the "Flip or Flop" pseudo-star called the high-rise project "the biggest flip" of his life. But while Los Angeles County is in need of more housing, there's an issue with his plan. There is an uproar within the local community because in order to build his 138-unit high-rise, several families were evicted from their little, rent-controlled apartments along the 11100 block of Hartsook Street. El Moussa's investment company, TEM Capital, said they will "handle any potential move out agreements if desired by existing tenants during this period of time" and "proper monetary compensation will be offered to interested tenants who would prefer to leave early." But that didn’t happen. The residents said their soon-to-be-razed complex is one of the only cottage-style communities with green space left on the block as everything that surrounds them are new apartments. "They've gentrified the whole neighborhood and it's impossible for people to afford to live here," said tenant Naomi Clemick. "The entire process has been and will continue to be handled through the Los Angeles Housing Department (LAHD) and a legal relocation advisor has now been retained in order to make 100% sure the relocation is performed according to the law, and that the existing tenants are treated respectfully and lawfully." Plans for the new building call for 14 of the 138 apartments to be designated as low-income units.

As WeWork Bankruptcy Looms, Attention Focuses On Its Massive Real Estate Portfolio. Bisnow reports that after WeWork’s disastrous second quarter that saw its CEO and chief financial officer resign, it may be heading for bankruptcy. The coworking firm appointed four new independent board members this week, all of whom are specialists in corporate bankruptcy and restructuring, the Wall Street Journal reports. The new directors were named to replace three board members who resigned over disagreements regarding WeWork's strategy and governance: Vivek Ranadivé, Daniel Hurwitz and Véronique Laury. The board reshuffling came on the heels of WeWork's Q2 report, in which the company reported "substantial doubt" about its ability to stay in business. If WeWork indeed goes bankrupt, it conveniently gives the company more legal means to back out of its leases (many of which are in the types of buildings losing out in the office flight to qualify). A WeWork exit and the associated loss in cash flow could be catastrophic for an office building in the current environment of reduced office demand and virtually no hope of debt refinancing. For example, WeWork stopped paying rent earlier this year at a nearly 100-year-old building in New York's Garment District where it had leased the entirety of a nine-story office condo. As a result, the landlord defaulted on its loan shortly thereafter. A separate analysis found 112 CMBS loans with a total balance of $9.5B with exposure to WeWork, with several individual loans worth $100M or more. Ranadivé held a seat on WeWork's board since his special-purpose acquisition company, BowX Acquisition Corp., took WeWork public in late 2021. Its initial public stock price was $13 per share, but has sunk all the way to 16 cents per share. In April, the New York Stock Exchange gave WeWork six months to get its stock price back above $1 in order to avoid being delisted. But here we are in August and bankruptcy (and de-listing) seem inevitable in the coming weeks.

World’s Cheapest Home Listed For Sale for $1. A home for sale in Pontiac, Michigan, has gone viral because it’s listed as “the world’s cheapest home” at just $1. Yes, just one dollar! The listing agent says he’s getting calls from across the globe from buyers trying to submit their offers by this week’s deadline. The two-bed, one-bath ranch-style house needs a little TLC, but that shouldn’t be a problem. There have been more than 70,000 views on Zillow.com in just two days for the property at 70 E. Ypsilanti Street in Pontiac. Clearly passionate about his work, Realtor Chris Hubel listed the 724-square foot home at a whopping asking price of $1 or best offer. He says the listing went viral when another website, Zillow Gone Wild, shared it. Several neighbors said they’ve noticed more traffic on the street this week, especially prospective buyers hoping to get a steal. But, to be clear, even though the home is listed for $1, it likely won’t sell for that. Hubel said he expects to sell the home for about $40,000 to $50,000. “The idea is any investor who does this for a living knows that they’re going to go into this house and they’re going to calculate how much money they’re going to spend, find out what makes sense for them to offer,” he said. “They’re going to offer the most money they can offer in hopes that they land the house and they can do a remodel and make some money on the back end when they flip it.” Hubel said the home’s value will measure up to comparable home prices in the area, about $120,000, once the buyer renovates it. But as the listing suggests, it’s going to take some work. “That hole leading down to the crawl space, glorious (for investors),” Hubel said. “That furnace? You might need to replace it but then you’ll have a brand-new furnace. And look at this PEX plumbing. It’s already been updated for you.” By the way, the deadline for you to submit offers and proof of funds is this Wednesday.

“Wholesaling” When it comes to wholesaling, there is only one guy you need to learn from. His name is Cliff Gager. Cliff has not only wholesaled hundreds of properties, he has written books about wholesaling and traveled the country preaching the virtues of wholesaling. Cliff will be our special guest speaker at our September general meeting. Don’t miss Cliff’s presentation. Thursday night, September 14, 2023, 6:30 to 9:30 pm. Plus, come early and enjoy our Vendors Expo. Iman Cultural Center, 3376 Motor Avenue (between National and Palms), Los Angeles, 90034 (Culver City adjacent). FREE Admission. RSVP: www.LARealEstateInvestors.com.

Vendors Expo Returns! Our world-famous, super-duper "Vendors Expo" returns on Thursday night, September 14, 2022. The Vendor Expo opens starting at 6:30 pm. We'll have 40+ of the finest vendors featuring real estate products and services you will want to utilize as a successful investor. So come early, meet and greet your future suppliers. Iman Cultural Center, 3376 Motor Avenue (between National and Palms), Los Angeles, CA 90034. FREE Admission. Metered and free street parking. Please RSVP at www.LARealEstateInvestors.com.

4^th Annual Los Angeles Real Estate Grand Expo. Our 4^th Annual Grand Expo returns on Saturday, October 21, 2022, 9:00 am to 6:00 pm. This year we’re taking over the entire Iman Cultural Center – it’s all ours for the whole day! The north hall, the south hall, and the parking lot in the middle (with tents and food trucks). One entire day celebrating real estate investing. The theme of this year’s Grand Expo is “Hedge Inflation – Buy Real Estate.” There will be 14 national speakers in breakout sessions, and over 70+ vendors in the North Exhibition Hall. Keynote speaker will be Steve Price, executive Vice-President of Auction.com, the number #1 provider of foreclosure properties in the United States. The Grand Expo is a joint production of the Los Angeles County Real Estate Investors Association, Sam’s Real Estate Club, Ventura County Real Estate Investors Association, and Realty 411. Best of all, the Grand Expo is FREE to attend. Street parking is free and metered. Valet parking will also be available. But please RSVP at www.LAGrandExpo.com.

“LARealEstateInvestors.com” Podcast. Are you enjoying our weekly podcast, "LARealEstateInvestors.com" (named after our domain) hosted by our very own Bill Gross? Bill has been a Realtor, broker and real estate investor forever! No one is more experienced in local Southern California real estate than Bill Gross. Each week, Bill interviews real estate professionals sharing their insights and advice for real estate investors. Every Tuesday live at 3:00 pm, and anytime thereafter on YouTube, Facebook, and Google.

This Week. Investors will continue to watch for Fed officials to elaborate on their plans for future monetary policy. Some economists insist the Fed is finished raising rates for this year. Other economists are not so sure. It will be a light week for economic reports, with a focus on the housing sector. Existing Home Sales will be released on Tuesday by the National Association of Realtors and New Home Sales will be released on Wednesday by the Census Bureau. Durable Orders will come out on Thursday, also from the Census Bureau. In addition, Fed Chair Powell will be speaking at the Jackson Hole economic summit on Friday.

Weekly Changes:

10-Year treasuries: Rose 010 bps

Dow Jones average: Fell 900 points

NASDAQ: Fell 500 points

Calendar:

Tuesday (8/22): Existing Home Sales

Wednesday (8/23): New Home Sales

Thursday (8/24): Durable Goods

For further information, comments, and questions

Lloyd Segal

President

Los Angeles County Real Estate Investors Association, LLC