Monday Morning Quarterback

Monday Morning Quarterback

(Happy Memorial Day)

How much does it really cost to build a home? To better understand single-family home construction costs, the National Association of Home Builders (“NAHB”) recently published their latest survey of cost breakdown. The NAHB provided the national averages for itemized costs in each stage of construction for a new single-family home in 2024. The data comes from NAHB’s construction cost survey published last year. Among the homebuilders surveyed, the average sales price of their single-family homes was $644,750 and includes costs for construction, the finished lot, financing, overhead and general expenses, marketing, sales commission, and profit. Total construction costs for the average single-family home included in the survey was $392,241. The pie chart below breaks out those costs for the average home. The NAHB broke down the costs of the eight major stages of construction (see the eight color groups in the pie chart below), which are made up of 36 subcategories. Of the 36 subcategories, framing, including the home’s roof, accounts for the biggest chunk at 15.5% of the total construction costs. It’s followed by “excavation, foundation, concrete, retaining walls, and backfill” at 10.1%. Also on the list: “impact fees.” However, it is also worth noting that last Friday, the U.S. Supreme Court in a 9-0 decision ruled that homebuilders and developers may challenge California’s impact fees. The case will now go back to the California courts. In California, these so-called “impact fees” (imposed by cities and counties to pay for things like roads and schools) have long been among the highest in the nation. “A home permit can contain 20- to 30-plus lines of impact fees, not including those paid by the land developer, or fees and costs moved into bond districts. In California, permits and impact fees often exceed $100,000 per home,” Jeff Grenz, a custom homebuilder in Sacramento, says. And with that, Happy Memorial Day and let’s get on with it…

Housing Starts Rebound in April. Construction of new homes rose 5.7% in April, as builders ramped up new projects. The pace of construction accelerated up as builders try to meet pent-up home-buying demand as mortgage rates are poised to fall over the coming months. U.S. housing starts rose to a 1.36 million annual pace from 1.29 million in March, the government said last Thursday. The rebound in April was only partial, recovering from a sharp plunge the month before, when housing starts fell by nearly 17%. Multi-family starts boosted the overall number, while single-family starts declined slightly. But high rates and home prices are worrying home builders. In May, they expressed gloominess over future sales of new homes for the first time since last November. Building permits, a sign of future construction, fell 3% to a 1.44 million rate. They scaled back single-family home starts, which fell by 0.4%. Housing starts are generally a volatile data series, but the data indicates a broader trend that home builders are feeling nervous about buyer demand in the face of how expensive it is to purchase homes. April’s rebound did not retrace the sharp drop in March. Builders also scaled back on permits that reflect how much they plan to build in the coming months. That could affect the supply of new homes, at a time when the market is hamstrung by a lack of for-sale home listings. One silver lining is that builders ramped up apartment starts, which could translate into a stable supply of rental housing. That could keep a lid on rent prices in the months to come.  “Restrictive monetary policy clearly continues to weigh on housing activity as housing starts have essentially been stuck in a sideways pattern around 1.4 [million] since the summer of 2022,” Ali Jaffery at CIBC Economics wrote in a note. “That trend is likely to continue until the Fed is confident inflation is headed for 2%.”

Existing Home Sales Declined 1.9% in April. Existing home sales continued to recede in April, likely the result of a normalization in activity following a larger than expected gain back in February. Sales are also still facing headwinds from mortgage rates that stubbornly remain above 7%. Meanwhile, home prices appear to be rising again, although modestly, with the median price of an existing home up 5.7% from a year ago. The result is that affordability is still a big concern for buyers. Assuming a 20% down payment, the rise in mortgage rates since the Federal Reserve began its current tightening cycle (in March 2022) amounts to a 42% increase in monthly payments on a new 30-year mortgage for the median existing home. Eventually, the housing market will adapt to these increases but continued volatility in financing costs will certainly cause indigestion. Notably, homes priced at $1 million and above have seen inventories and sales rise 34% and 40%, respectively, in the past year. This demonstrates that, at least at the higher end of the market, both buyers and sellers are adjusting to the new reality of higher rates. That said, outside the most expensive segment many existing homeowners are reluctant to sell due to a “mortgage lock-in” phenomenon, after buying or refinancing at much lower rates before 2022. This remains a major headwind to activity by limiting future existing sales (and inventories). However, there are signs of progress with inventories rising 16.3% in the past year. That said, the months’ supply of homes (how long it would take to sell existing inventory at the current very slow sales pace) was still 3.5 in April (well below the benchmark of 5.0 that the National Association of Realtors uses to denote a normal market). A tight inventory of existing homes means that while the pace of sales looks like 2008, we aren’t seeing that translate to a big decline in prices. Putting this together, you can expect sales to be higher this year than in 2023.

Foreclosures Nationwide Shows Decline in April. ATTOM data services released its April 2024 “U.S. Foreclosure Market Report” which shows there were a total of 31,649 U.S. properties with foreclosure filings (i.e. default notices, scheduled auctions or bank repossessions) down 4 percent from a month ago and down 4 percent from a year ago. “April’s foreclosure numbers highlight a mixed landscape in the U.S. housing market,” said Rob Barber, CEO at ATTOM. “While there is a general downtrend in foreclosure starts and filings, we have also seen an increase in completed foreclosures. This mixed activity underscores the importance of closely monitoring these developments to understand the ongoing dynamics in the real estate market.” Nationwide one in every 4,453 housing units had a foreclosure filing in April 2024. States with the highest foreclosure rates were Maryland (one in every 2,214 housing units with a foreclosure filing); Illinois (one in every 2,517 housing units); Nevada (one in every 2,546 housing units); South Carolina (one in every 2,573 housing units); and Florida (one in every 2,854 housing units). Among the 224 metropolitan statistical areas with a population of at least 200,000, those with the highest foreclosure rates in April 2024 were Elkhart, IN (one in every 1,565 housing units with a foreclosure filing); Columbia, SC (one in every 1,689 housing units); Cleveland, OH (one in every 1,859 housing units); Lakeland, FL (one in every 1,861 housing units); and Flint, MI (one in every 1,998 housing units).

Judge Delays Graceland Foreclosure Sale. A Tennessee judge last Wednesday blocked a foreclosure sale of Graceland, ruling that it's in public's best interest to slow any potential ownership change of Elvis Presley's "well loved" estate. The Shelby County Chancery Court judge went as far as to say that actor Riley Keough, (the daughter of Lisa Marie Presley and granddaughter of the “King of Rock and Roll”) would likely prevail in her lawsuit, accusing a creditor of falsely claiming rights to Graceland, as long as there is evidence to back up her claims. Naussany Investments and Private Lending LLC claims it made a $3.8 million loan to Lisa Marie Presley in 2018 with Elvis' famed home used as collateral. But Keough (legally known as “Danielle Riley Keough” in court documents), insists that the alleged creditor used forged signatures to create a loan that never existed. A lawyer for the creditor did not appear in court on Wednesday. And Gregory Naussany, who calls himself a “lender” and representative of Jacksonville, Florida-based Naussany Investments & Private Lending, did not immediately return messages seeking his response on Wednesday. But in court filing on Tuesday, Naussany said the company’s claim to Graceland is legitimate. Jenkins said Naussany would have a chance to make his case. "Mr. Naussany will not (be) harmed ... by delaying the trial on this matter until we can have adequate discovery (and) allow them to file an answer and provide a defense to the claim that he’s made," Jenkins said. Given the worldwide fame of Graceland, the judge said prudence calls for any foreclosure sale to be delayed. “The public interest is best served, particularly here in Shelby County, for Graceland is a part of this community, well loved by this community and, indeed, around the world," Jenkins said.A representative for Graceland said the judge's actions "made clear" that the estate is not in danger of changing hands. "As the court has now made clear, there was no validity to the claims. There will be no foreclosure," said a Graceland statement. "Graceland will continue to operate as it has for the past 42 years, ensuring that Elvis fans from around the world can continue to have a best-in-class experience when visiting his iconic home." Graceland is the second most visited house in the United States after the White House. In response, Naussany dismissed the foreclosure all together and walked away. Amen.

Tiny Cupertino home Sells For $1.7 million. A home in Cupertino, Calif., that measures 384 square feet is making headlines across the U.S. for its surprising asking price: more than $1.7 million. Some are comparing the one-bedroom and one-bathroom home to a hotel room, so small that there isn’t enough space in the kitchen for a full size refrigerator or stove. Nevertheless, it received eight offers, all above the asking price, and the winning bidder is expected to close escrow next month. “The marketing strategy was to market the listing as a home and to get as many eyes on it as possible and it obviously worked,” said Faviola Perez, a broker with the Compass Bonafede Team. High real estate prices are not uncommon in California’s Silicon Valley, home to tech giants such as Apple, Google and Oracle. In fact, the median price for homes sold in Cupertino is $2 million, according to a recent report by Rocket Homes. And this tiny house at 10036 Carmen Road shows that size doesn’t always matter. Perez, the co-listing agent for the home, said the team knew the bulk of the value of the property was in the land. The property has potential for expansion or building on, but the “shock factor” for everyone was the size of the home and its accompanying price tag, she said. The Zillow listing says the home is nestled at the end of a cul-de-sac, near hiking trails and Silicon Valley’s tech hubs. More importantly, Perez said, the home is close to the Los Altos Hills border, an area where home values start at an estimated $5 million, according to Zillow. Los Altos Hills home values influence those in adjacent communities, an added bonus for someone who wants to build. Perez said the city of Cupertino’s planning department will allow the property owner to build a home that’s more than 3,600 square feet in size. According to NBC Bay area, the small abode was originally built in 1948 as a hunting lodge. This story showcases the soaring values in certain real estate markets, particularly Northern California.  

Most Expensive House In The World. A historic château on the outskirts of Paris is poised to become the most expensive house in the world should it sell for its $452 million asking price, reports Mansion Global. Known as “Château d’Armainvilliers,” the home previously belonged to the Rothschild family (England’s illustrious banking dynasty), as well as King Hassan II of Morocco and is currently available off-market via Whisper Auctions. According to a post on the Rothchild family archives, the residence dates to the 12th century as an ancient stronghold, but was partially destroyed in the French Revolution. It was restored under the Second Empire and purchased in 1877 by Edmond de Rothschild, who replaced the castle with a chateau. By the beginning of the 20th century, the estate had grown to 3,961 hectares. According to Mansion Global, the property spans 100 rooms across three floors and includes three elevators, 17 themed bedroom suites, and five salons. Amenities in the compound include stables for 50 horses, a beauty parlor, hammam, and housing for staff members. After Edmond’s death, the home was passed down to various members of the Rothschild family before Edmond’s grandson sold it to the King of Morocco in the 1980s. If Château d’Armainvilliers goes for anywhere near its reported asking price, it will easily claim the crown. But Mansion Global reports that the home will likely change hands behind closed doors. “Most properties we sell are on a whispering basis; the properties change owners mostly confidentiality.” And there’s already interest from potential buyers. “One from East Europe, three from Asia, and one from Mongolia.” 

Are The Barrington Plaza Evictions Legal? Nearly a year ago, every tenant at the massive Westside apartment complex Barrington Plaza was served with an eviction notice by their landlord. The eviction notice said the residents of nearly 600 units needed to move out so the company could install fire sprinklers (following two major blazes). In the months since, most of the tenants have left. But more than 100 stayed behind, refusing to vacate and vowing to fight in court for the right to stay in their rent-controlled units. They argue the owner’s real intent is to upgrade the complex and re-rent the units at market rate. Last Wednesday, their day in court finally came as lawyers for the tenants and the owner, Douglas Emmett Inc., presented opening arguments in a civil case that will decide whether the evictions are legal. The tenants and their advocates see the case as an important test of renter protections in a city faced with an affordable housing crisis. The company wants to evict the residents under the Ellis Act (which allows landlords to evict rent-stabilized tenants to remove units from the rental market — for instance, to build condos). The heart of the case revolves around whether the company truly intends to take the units off the rental market and whether the law requires them to do so permanently. Frances M. Campbell, the tenant’s attorney, says evidence presented during the trial will show that the company for years had plans to “transform and upgrade” the complex and to re-rent the apartments “at a new market rate.” But Campbell argues the law requires owners who invoke the Ellis Act to remove the units permanently from the rental market. “Defendants can point to no case that allows a landlord to invoke the Ellis Act to temporarily go out of the rental business while it remodels or makes repairs to its buildings. And that makes sense, because that is not the purpose of the Ellis Act,” the tenants’ lawyers wrote in their trial brief. In his arguments on behalf of Douglas Emmett, attorney Gibson points to that same email as evidence that the company wasn’t trying to evade rent control. Installing fire sprinklers and making other safety upgrades is a multiyear project, and the apartments will be removed from the market during that time, he said. The Company attorneys further argue the Ellis Act does not require owners to remove the properties from the rental market forever. Only that they do not “conduct a sham removal” in order to evade rent control. “This is not one of those sham situations,” Gibson says. Stay tuned.

Bob Barker’s Hollywood Hills Spanish Colonial For Sale. In the market for a historic Hollywood home? Come on down! The Spanish Colonial where the late game show host Bob Barker lived for the entirety of his career as host of The Price is Right (and then some) has landed on the market with an asking price just shy of $3 million, the Wall Street Journal reports. Barker bought the 1929-built dwelling in 1969, three years before he became known as the face of what is now America’s longest-running game show. The Washington native retired from that post in 2007, but continued living in the home (which is not far from the studio where he taped The Price is Right) until his death last year at the age of 99. Per the listing, Barker left the roughly 6,000-square-foot house relatively untouched during his half-century of ownership. As a result, it’s apparently a bit of a fixer upper. But on the plus side, lots and lots of historic charm remains intact. Leaded and stained glass windows, colorful bathroom tiles, and a hand-painted fresco on the entryway’s coffered ceiling are among the home’s original details. In the library is where Barker proudly displayed his 19 Daytime Emmys awards sitting them on an original wooden bar with an icebox and a mirrored ceiling. In its current configuration, the home offers four bedrooms and five bath-rooms, but at one point it hosted an additional bathroom and two bedrooms in the basement, according to the listing. Barker, who was an aviator in World War II, turned one room into a storage space for his military memorabilia collection. A hand-carved balcony runs along the length of the home’s upper floor, with steps down to the backyard pool. An old oak tree shades the front entry and driveway, which winds around lush landscaping up to an attached garage. If interested, come on down!

Vendors Expo Returns! Our world-famous, super-duper "Vendors Expo" returns on Thursday night, June 13, 2024. The Vendor Expo opens starting at 6:30 pm. We'll have 30+ of the finest vendors featuring real estate products and services you will want to utilize as a successful investor. Stick around after and enjoy our guest speaker. 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.

Accessory Dwelling Units (“ADU”). Our June general meeting will be held on Thursday night, June13, 2024, 6:30 to 9:30 pm. Our very special guest will be Seth Phillips, California’s leading authority on “Accessory Dwelling Units” (“ADU”) and the laws regarding 2-3-4 units on a single-family zoned lot. If you want to build more units and increase your rental income, you must attend Seth’s presentation. Our meeting will be held at the Iman Cultural Center, 3376 Motor Avenue (between National and Palms), Los Angeles 90034 (Culver City adjacent). FREE Admission. Please RSVP at www.LARealEstateInvestors.com.  

Foreclosure Workshop. How to find and buy foreclosure properties, including buying pre-foreclosure properties from distressed property owners, buying at the trustee’s sale, and buying REOs. Plus attendees will have the opportunity to participate and bid at a live trustee’s sale. Saturday, July 29, 2024, 9:00 am to 5:00 pm. Iman Cultural Center, 3376 Motor Avenue, Los Angeles 90034. The cost of the Forum is $149.00 per person if paid before June 22. After June 22, the price increases to $1 million. So don’t wait to register! (Gold Members can attend for FREE.) www.LARealEstateInvestors.com.

Cash Flow Chronicles Podcast. We are so very excited about our weekly podcast, "Cash Flow Chronicles" hosted by our very own Bill Gross. Bill has been a Realtor, broker and real estate investor since the Ice Age! 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. Every Tuesday 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. For economic reports, Consumer Confidence will be released on Tuesday from the Census Bueau. Personal Income and the PCE price index, the inflation indicator favored by the Fed, will be released on Friday by the Bureau of Economic Analysis. Markets will be closed today for Memorial Day.

Weekly Changes:

10-Year Treasuries:             Rose  010 bps

Dow Jones Average:           Fell     800 points

NASDAQ:                            Rose  100 points

Calendar:

Tuesday (5/28):                    Consumer Confidence

Friday (5/31):                        Core PCE

Friday (5/31):                        Personal Income

For further information, comments, and questions:

Lloyd Segal

President

Los Angeles County Real Estate Investors Association, LLC

www.LARealEstateInvestors.com

This email address is being protected from spambots. You need JavaScript enabled to view it.

310-409-8310