Monday Morning Quarterback

Monday Morning Quarterback

(Happy Labor Day)

We all knew it was coming…and in Jackson Hole last week, Federal Reserve Chairman Jerome Powell said it will finally come next month. He said, “the time has come,” and the futures markets have priced in either a 25 or 50 basis point rate cut at the Fed meeting on September 18. While the world seems to think the setting of the federal funds rate is the most important decision in monetary policy, its probably not true. In reality there are multiple things you should watch to determine the stance of monetary policy. Interest rates are certainly one, but the rate of growth in M2 money supply in circulation is actually more important…and that growth rate will be influenced by what the Treasury Department does with the $730 billion it holds at the Fed in something called the Treasury General Account (“TGA”). Economists believe that the real reason inflation has slowed is because the Fed allowed M2 to decline after the massive increases during COVID. Yes, short term interest rates were very low. But it wasn’t those low rates that caused the inflation, otherwise short-term rates that were just as low in the aftermath of the 2008-09 Financial Crisis would have caused a similar surge in inflation. Similarly, it wasn’t the hikes in short-term interest rates that brought inflation back down. It was the slowdown in M2, in part caused by the growth of the TGA (which the government used to take roughly $700 billion out of circulation). This new system of abundant reserves and a large TGA has pushed the US very close to Modern Monetary Theory (where the Treasury can take money out of circulation by borrowing or taxing from the public and then hiding it in the TGA). And the Treasury could always, if needed, drain the TGA and push $700 billion back into circulation by spending. Meanwhile, the housing market is probably not poised to surge as short-term interest rates start to decline. Mortgage rates are NOT going to fall back to 3%. In addition, when the Fed starts cutting rates and people think they will cut them more, they may hold back on purchases of homes waiting for even lower rates. So sometimes, rate cuts lead to slower growth in the near term. Also, we have presidential candidates suggesting tax credits for some buyers, which could also postpone purchases into next year. In other real estate investors news, let’s get down into the weeds…

Case-Shiller Says Home-Prices Reach Record High. Home prices in the 20 biggest U.S. metropolitan areas set another record high in June but showed signs of a prolonged and gradual slowdown. The S&P CoreLogic Case-Shiller 20-City House-Price Index rose 0.4% in June compared with the previous month. Home prices in the 20 major U.S. metropolitan markets surveyed were up 6.5% in the 12 months ending in June. That’s a deceleration following an increase of 6.9% the previous month. Economists surveyed by Dow Jones Newswires and the Wall Street Journal expected the 20-City Index to increase 6.3%. A broader measure of home prices, the National Index, rose 0.2% in June and was also up 5.4% over the past year. All numbers are seasonally adjusted. The 20-City and National Indexes are at an all-time high. New York posted the biggest year-over-year home-price gains in June. Prices were up 9%. Home prices grew the slowest, by 0.8%, in Portland, Ore. Los Angeles was at 8.2%. A separate report from the Federal Housing Finance Agency also showed home prices were down by 0.1% in June compared with the previous month but were up 5.1% in the past year. “U.S. house prices saw the third consecutive slowdown in quarterly growth,” the agency said, “likely due to higher inventory of homes for sale and elevated mortgage rates.” The median price of a resale home in the U.S. was $426,900 in June, and the price of a newly-built home was $416,700. Home prices continue to reach new heights, but the pace of appreciation has significantly slowed. With more homes being listed for sale, home buyers are finding more options in the market. And as supply increases, prices cool. The number of active for-sale listings was up 18% from a year ago, as of mid-August, according to data from Redfin. 

Homes Sell for Over $1 Million in the Most Expensive Housing Markets. While the median sale price of U.S. homes is just shy of $426,900 in Q2 2024, homes in some areas more than doubled that average. These expensive places may prevent hopeful first-time homebuyers from investing in the area, making renting (or even moving to a less expensive area) a better alternative. In some cases, high wages and demand keeps the pressure up on a lackluster supply of homes. With this in mind, SmartAsset ranked the 100 largest metro areas based on the average home sale prices as of April 2024 to find the most and least affordable places for homebuyers:

1. California metros take the top five spots for the most expensive housing markets. Home values in first place San Jose are more than double those in sixth place Honolulu. The average sale price in San Jose was $1.50 million in April 2024, up 12.9% from the year before. San Francisco ($1.13 million), Los Angeles ($926,000), San Diego ($876,000) and Oxnard ($845,000) rank second through fifth.
2. Homes sell for less than $200k in four Ohio metros. These claim the top of the list for least expensive homes. In 2024, homes average $157,176 in Toledo, $177,000 in Akron, $187,000 in Dayton, and $187,000 in Cleveland.
3. Home prices have increased by more than 50% since pre-pandemic. Over the last five years, home sale prices in large metro areas have increased by 51.3%. Knoxville, TN saw the largest increase in this time at 89.5%, while Honolulu, HI saw the smallest relative climb in home prices at 23.4%.
4. New York City climbs the ranks. In just one year, the New York metro jumped from 12th-most expensive to ninth. Homes sell for about $579,000 as of April 2024, after a 10.7% annual increase. Home prices across all major metros increased by an average 6% in the same time. 

In Key Congressional Race, Central Valley Real Estate Deal is Controversial (Part 1). When the federal government closed Castle Air Force Base in Merced County in the 1990s, the dilapidated buildings and vast expanse of aging tarmac left behind seemed more like a liability than an opportunity. But by 2018, the old runways that once carried B-52 bombers had found a new and unexpected customer: Google, which was testing its experimental self-driving vehicles there, far from the prying eyes of Silicon Valley. At the urging of then-state Assemblyman Adam Gray, California gave Merced County $6.5 million that year to expand the self-driving testing program at the old base. In 2022, a company in which Gray is a minority owner bought four apartment buildings on the former base from Merced County, according to the LA Times. Gray’s link to the real estate deal had not been previously reported. The sale closed for $600,000 in August 2022, records show, but the property is now suddenly valued at more than $2.5 million. Now, the real estate deal has come under scrutiny as Gray, a Democrat, fights to unseat first-term Rep. John Durate (R-Modesto) in California’s 13^th Congressional District. Republicans have questioned the timing of Gray’s purchase, which closed four months before he left the Legislature and less than a year before California officials awarded nearly $50 million in new funding for the site. Petersen accuses Gray of “mixing taxpayer money with personal profit” and said the apartment deal should be investigated. [Part 2 continued at end of this Quarterback.]

The Next Real Estate Trend: “Silver Squatters.” Young adult children have spent years relying on funding from the “Bank of Mom and Dad,” and now the tables have turned. Their parents say they may soon need to mooch off of them. Members of Generation X, currently in their 40s and 50s, are finding themselves “critically underprepared” for retirement, and they’re counting on financial and housing support from their families, according to Prudential Financial Inc.’s “2024 Pulse of the American Retiree Survey.” The report says this could spark the “rise of Silver Squatters.” Just a decade until retirement eligible, 55-year-old Americans have less than $50,000 in retirement savings, the report finds. Two-thirds of 55-year-olds fear outliving their savings, and researchers say they’re in the midst of a “midlife retirement crisis” as they realize they haven’t saved nearly enough. Nearly a quarter of 55-year-olds expect to need financial support from family in retirement—twice as many as current 65- and 75-year-olds do. One in five (21%) also expect to need housing support. However, this need for retirement help is largely going unspoken. Nearly half of 55-year-olds who expect to need support have not yet discussed it with their family. Inflation, higher living costs, rising homeownership expenses and the demise of pension plans (which largely supported previous generations) are hampering households’ ability to financially prepare for retirement. About a third within the “sandwich generation” says caregiving responsibilities have prevented them from buying a home, or for those who do own one, it’s prevented them from being able to pay off their mortgage, according to a study from realtor.com®. However, for others, the caregiving situation may be improving their financial situation. For now, baby boomers are mostly the focus as they’re currently facing retirement; about 11,000 65-year-olds enter retirement every day, the Prudential report notes. 

This French Château Is on the Market—and It Costs Nothing. Investors, here is the ultimate deal. This medieval French château [see photo below] is for sale near the Pyrenees on the Spanish border. If you’ve ever dreamed of living the life of royalty, it may be time to pack your bags with your favorite princess or nobleman outfits, fly to France, and go pick up the keys to this chateau. The best part is—you won’t have to pay a dime! But, as you may expect, there are some strings that come with this opportunity. Listed as a historic monument, Château de Lagarde, nicknamed the “Little Versailles of the Pyrenees” is located in Ariège, a region in southern France bordering Andorra. The castle was built in the 11th century and looted during the French Revolution. An estimated 10,000 visitors used to travel to the site every year but this summer (and for the foreseeable future), the structure will be closed to the public. Over time, the building, which wasn’t maintained (much less restored) has deteriorated. Experts have noted wear and tear on the foundations, and the centuries-old building is now in danger of collapsing. Now this abandoned French château could be yours, though there is the risk that it may prove to be a royal headache. Originally constructed in the Middle Ages, the building has a remarkable array of defenses to repel enemies and protect its inhabitants. Its current owners are reluctantly parting with it, however, as the site has become dangerous, and the association that looks after it doesn’t have the funds to undertake a restoration. The local Department of Cultural Affairs decided to suspend visits until restructuring work can be carried out. “We’re disappointed and angry. We’re being asked to carry out work on the château, but it’s in ruins,” a spokesperson for the association told television network France 3. “If anyone wants it, they can have it,” concludes the association’s chairman. But take heart, the after-repaired value is approximately $25 million (or Francs). So maybe, you’re the person to step up and become the lord or lady of this castle, and save part of France’s cultural heritage at the same time.

Legendary Poltergeist House Hits The Market For First Time. Night has fallen over the fictional California suburb of Cuesta Verde. In one of the houses, the mysterious flicker of a television awakens a little girl with a doll-like face, and she quietly crawls out of bed and onto the carpet below. Her parents are fast asleep. No one else is around. She kneels down, stares at the TV, and her blue eyes sparkle in the whispering static. Suddenly, a ghostly hand materializes from the screen, reaching toward her before disappearing into another wall. “They’re here,” the girl says. Tucked away on a quiet Simi Valley road surrounded by mountainous hiking trails, the real two-story home at 4267 Roxbury St. looks like any other in the neighborhood, shaded by palm trees with a manicured lawn and a brick staircase leading up to the entryway. But it’s one of the most iconic haunted houses in Hollywood history. For the first time in 45 years, the property featured in the 1982 cult classic “Poltergeist,” directed by Tobe Hooper and written by Steven Spielberg, is on the market. The house was listed for $1.1 million following the death of its longtime owner, said Lauren Murdock, the agent representing the property. Built in 1979, the 2,373-square-foot residence with four bedrooms and 2.5 bathrooms was purportedly handpicked by Spielberg, who was filming “E.T.” nearby around the same time production for “Poltergeist” was underway. The film plays out like a carnival dark ride, following an unremarkable all-American family whose lives are turned upside down when they realize they’re sharing the same property as malevolent spirits. Antics ensue as unseen forces send chairs flying across their kitchen. A tree becomes possessed and crashes through the son’s bedroom window. Skeletons are buried beneath the pool, and inside, a bedroom closet is a portal that catapults the daughter into another dimension. “Poltergeist” was nominated for three Academy Awards, won the BAFTA award for best visual effects, was featured in Bravo’s “100 Scariest Movie Moments” and changed the way an entire generation of fans looked at the shadows lurking in every corner of their own homes. Even over 40 years later, the fervor surrounding the movie is unshakeable. 

In Key Congressional Race (Part 2, continued from above). Far from Gray lining his pockets, his campaign and company argues, the old Castle Air Force Base apartments have required so much renovation that Gray has actually lost money. As a real estate investor, you can certainly understand this argument. Gray is a minority owner in Gemenii LLC, the company that owns the apartment complex at the base. Gemenii is a subsidiary of a family-owned residential and commercial construction company of which Gray is also a member, the firm says. Gray learned about the Castle Air Force Base apartments about six months before the sale, when “partners that own other properties at Castle” approached him with the idea of renovating the 80-unit complex to provide affordable housing, the company says. The four spartan buildings, once barracks for airmen, were in dis-repair, and three were vacant. Merced County had classified the property as surplus and assessed the buildings and the 5.3 acres of land beneath them at $400,000 to $600,000, the company says. When the county received “no other competitive offers.” Merced County sold the buildings for $600,000. The company took out an $885,000, 30-year mortgage at the end of 2022, and a $3-million, 15-year mortgage in June of this year, to finance reno-vations at the building. The firm has since spent millions on renovations, “exactly as intended by Merced County when the property was sold in an open and public sale process,” company attorney Richard Marchini said in a written statement. Gray has a 30% stake in the firm that owns the apartments, the company says. His name does not appear in the company’s state business filings. But Gray has not received any income from the business in 2023 or 2024, the campaign says, and the investment has not made a profit. You decide?

Basic Training Investing Boot Camp. Saturday, September 28, 2024, 9:00 am to 6:00 pm, will be our semi-annual Basic Training Boot Camp. Everything you ever wanted to know about real estate investing but were afraid to ask. Iman Cultural Center, South Hall, 3376 Motor Avenue (between National and Palms), Los Angeles, 90034.The cost of the Boot Camp is $149.00 per person if paid before September 21. After September 21, the price jumps to $249.00! So don’t wait to register. (Gold Members and former Boot Campers can attend for FREE, but still need to register.) Plus free parking. You can register at LARealEstateInvestors.com. 

Vendors Expo Returns! Our world-famous, super-duper "Vendors Expo" returns on Thursday night, September 12, 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.

5th Annual Los Angeles Real Estate Grand Expo. We are very excited to announce our 5th Annual Los Angeles Real Estate Grand Expo. The Grand Expo returns on Saturday, October 26, 2024, 9:00 am to 6:00 pm. We're taking over the entire Iman Cultural Center for the day - it's all ours! The North Hall (vendor exhibition area), the South Hall (workshops), and the middle parking lot (loaded with workshop tents and food trucks). The theme of this year’s Grand Expo will be “Hedge Inflation - Buy Real Estate.” Last year, the Grand Expo was the largest real estate event in California! We had over 800 investors, 64 vendors, and 12 national speakers!  This year will be even BIGGER! An entire day celebrating real estate investing and you can be involved. Best of all, the Grand Expo will be FREE to attend. This Expo is going to be big, really BIG! 

Tax Deed Investing With Jason Porter. Thursday night, September 12, 2024. Jason has been speaking on real estate investing strategies, entrepreneurship, and peak personal performance since 1998. However, his focus since 2008 has been the little understood investing strategy of “Tax Deed Investing.” The amazing thing about tax deeds is that they offer investors the opportunity to invest in real estate cheaper than any other form of acquisition. Jason’s students’ target purchase price is generally 10% to 50% of After Repaired Value (“ARV”). Even in today’s hyper-competitive market, Jason’s students routinely purchase properties for 40 cents on the dollar and below. Tax deed investing is exciting because Jason teaches investors how to find tax deeds and how to buy them as low as possible. He has spoken in 17 countries to audiences as large as 12,000 investors. And on September 12th he’s with us. We know you will enjoy Jason. Iman Cultural Center, 3376 Motor Avenue, Los Aneles, CA 90034 (between National and Palms. Free Admission. RSVP at our website: 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 look for Fed officials to elaborate on their plans for future monetary policy and rate cuts. Markets will be closed today for Labor Day. For economic reports, the Institute of Supply Management National Manufacturing Index will come out tomorrow and the National Services Sector Index on Thursday. The key Employment report will be released on Friday, and these figures on the number of jobs, the unemployment rate, and wage inflation will be some of the most highly anticipated economic data of the month.

Weekly Changes:

10-Year Treasuries:            Rose  005 bps

Dow Jones Average:          Rose  300 points

NASDAQ:                           Fell    200 points

Calendar:

Tuesday (9/3):                      ISM Manufacturing

Thursday (9/5):                    ISM Services

Friday (9/6):                         Employment

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.

310-792-6404