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Lloyd Segal
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  • Real Estate Coach
  • Los Angeles, CA
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Economic Update (Monday, April 26, 2021)

Lloyd Segal
Pro Member
  • Real Estate Coach
  • Los Angeles, CA
Posted Apr 26 2021, 09:25

Economic Update
(Monday, April 26, 2021)

While the nation was focused on a Minneapolis courtroom last week, there was also history emanating from a Los Angeles courtroom. A federal judge overseeing a sprawling lawsuit about homelessness in Los Angeles courageously ordered the City and County to offer housing to the ENTIRE homeless population of skid row (approximately 4,600 people) no later than October 18th. Judge David O. Carter granted a preliminary injunction ordering the city and county offer single women and unaccompanied children on skid row a place to stay within 90 days, help families within 120 days and finally, by Oct. 18, offer every homeless person on skid row housing. The city and county will challenge the order, which also calls for the city to put $1 billion into an escrow account. Yes, $1 billion! The ruling argues that L.A. city and county wrongly focused on permanent housing “knowing that development delays were likely while people died in the streets.” Carter’s 110-page brief is sprinkled with quotes from Abraham Lincoln and an extensive history of how skid row was first created. As real estate investors we focus on “homes.” But we also have a moral obligation to focus on the “homeless.” No question what happened to George Floyd in Minneapolis was horrific. But what is happening to our burgeoning homeless population is no less deplorable.

Existing Home Sales Suffer Decline. Closed sales of existing homes fell 3.7% in March to a seasonally adjusted annualized rate of 6.01 million units, according to the National Association of Realtors. That is the slowest sales pace since August and the second straight month of declines. Still, sales were 12.3% higher than March 2020, when transactions were falling due to the Covid pandemic. Realtors say the monthly numbers are dropping due to limited supply. The demand is there. Homes are selling in an average of just 18 days, which is considered an extremely fast rate. But the supply of homes for sale fell 28.2% from a year ago. There were just 1.07 million homes for sale at the end of month, representing a 2.1-month supply at the current sales pace. Low supply continues to push prices ever higher. The median price of an existing home sold in March was $329,100, a 17.2% increase from March 2020. That is the highest price on record and the fastest pace of appreciation. Some of that gain is due to the fact that there are more homes selling on the higher end of the market, therefore skewing the median higher. Overall, however, prices are significantly higher. These closed sales represent contracts signed in January and February. More homes have been coming on the market in the past few weeks, but the market is still incredibly lean, especially on the low end. Higher-end home listings are more plentiful.

New Home Sales Soared 20.7% in March. New single-family home sales soared 20.7% in March to a 1.021 million annual rate. Sales are up 66.8% from a year ago. The months' supply of new homes (how long it would take to sell all the homes in inventory) fell to 3.6 in March from 4.4 in February. The decline was due to a faster pace of sales. Inventories remained unchanged in March. New home sales surged in March, beating even the most optimistic forecast by any economics group as buyers excitedly re-entered the market following a temporary pause in activity in February (due to severe winter weather across the US). New home sales are now up 31.9% from the pre-COVID high and currently sit at the highest level since 2006. Keep in mind that sales of new homes are counted when contracts are signed rather than being counted at closing (like existing home sales). This means they are a timelier indicator of the housing market, so it's not surprising that March new home sales posted such a strong rebound from February's weather-related weakness (20.7%) while existing home sales yesterday did not (-3.7%). Looking ahead, new home sales will continue to face headwinds related to affordability and low inventories. The bigger issue for new home sales, though, continues to be the lack of finished homes available for purchase. In the past year, the only portion of the new homes inventory that has increased are homes where construction has yet to start. Meanwhile, the inventory of completed new homes available for sale is down a massive 50.7% over the same period, illustrating just how strong demand was in 2020. The good news is that builders are responding to the inventory shortage, with the number of single-family homes currently under construction at the highest levels since 2007. As more homes become available, expect demand will remain strong and help maintain a rapid pace of sales in 2021.


Mortgage Rates Drop Below 3% Again. Mortgage rates slid below the 3% mark once again, giving investors, existing homeowners and prospective buyers the chance to lock in historically low interest rates in a competitive housing market. The 30-year fixed-rate mortgage averaged 2.97% for the week ending April 8, down seven basis points from the previous week, Freddie Mac reports. The rate on the 30-year loan has fallen 20 basis points since reaching the highest level at the end of March. The 15-year fixed-rate mortgage, meanwhile, fell six basis points to an average of 2.29%. The 5-year Treasury-indexed adjustable-rate mortgage averaged 2.83%, up three basis points from the previous week. The drop in rates reflect a shift back toward long-term bonds (as the stock market volatility increased). Mortgage rates roughly follow the direction of long-term bond yields, particular the 10-year Treasury note. Continuing a recent trend, yields showed little regard for strong economic data reports released last week, trending downward despite strong readings on retail sales and consumer confidence. The decline in rates offers another lifeline, particularly to homeowners who were unable to take advantage of last year’s record-breaking low mortgage rates. Research from Freddie Mac indicates that minority households and households with lower incomes were less likely to refinance their mortgages. Homebuyers, too, are welcoming the drop in interest rates. And the timing perhaps couldn’t be better. Rates are falling just as the spring home-buying season is kicking into full gear. Buyers still have to grapple with fast-selling homes and rising prices. This should help home sales maintain recent momentum.

Some Landlord are Ignoring Eviction Moratoriums. With millions of renters staring down evictions during the global health crisis, the Centers for Disease Control and Prevention extended its nationwide ban on evictions until June 30. The order is meant to shield families from being pushed out of their homes. But while tenant advocates praised the moratorium, they said the program’s implementation hasn’t been equal in practice. Many renters are still being displaced from their homes. Interviews with renters, legal aid attorneys, housing experts and affordable housing advocates at the state, local and national level show a process that can be subject to the whims of local politics or geography. Depending on the courtroom, a judge hearing eviction cases might ignore the ban, questioning the federal government’s authority to implement it. Other judges have questioned whether the order applies to tenants on month-to-month leases. Across the country, landlords are continuing to find ways to get tenants out, in some cases by declining to renew their lease or claiming that tenants broke the lease’s terms. While the federal policy bans evictions based solely on nonpayment of rent, it allows evictions for other issues, such as damaging property or engaging in criminal activity. Since the pandemic began, 284,490 evictions have been filed across the five states and 28 cities tracked by The Eviction Lab at Princeton University. More than 163,700 of them were filed since the federal government’s ban went into effect Sept. 4, 2020. The Consumer Financial Protection Bureau and the Federal Trade Commission announced March 29 that both agencies would monitor and investigate eviction practices. Just as the pandemic has disproportionately affected communities of color, racial disparities in the ability to afford housing influence families’ vulnerability to evictions now. Black, Hispanic and Asian households were more likely to be behind on rent than white households, according to an analysis of U.S. Census Bureau Household Pulse Survey data. Many states have ordered their own eviction bans, providing additional protection on top of the federal order. And some renters may misunderstand the moratorium, thinking it offers a blanket immunity without understanding the steps involved.


More than Half of LA Homes Sold Above Asking Price. Do you think this housing market is hot? How hot? Well, consider this: March saw more than half the listed homes in L.A. sell for more than asking price, as market demand continues to rise. More than half of homes in the city that sold in March closed for more than their listing price, according to DQNews. L.A.’s housing market is historically one of the most expensive and competitive in the country, but the numbers make it clear that this year is different. Out of 565 sales in the city in March, half closed above the listed amount. In March 2020, 44 percent of homes sold above asking, and in March 2019 just 36 percent of homes sold above the listed price. Competition within the city of L.A. is strongest at the lower end of the market. Around two-thirds of homes listed under $1 million sold for above their asking price, compared to nearly 44 percent of homes listed above $1 million. A shortage of listings since the pandemic has been driving up pricing and fueling competition. The median sales price in L.A. County in February was $708,500 — 14 percent higher than February 2020. The number of sales were up 19 percent year-over-year. Similar trends are playing out across Southern California. The median sales price across the six-county region was up 15 percent year-over-year to $619,750 and sales were up 17.6 percent compared to February 2020. The national market as a whole is also extremely competitive. Around six of 10 homes that sold in March nationwide sold within two weeks of listing.


Climate-Change Lawsuit Nixes Tejon Ranch Development. When you’re driving north from Los Angeles, just before the 5 Freeway drops into the Central Valley, the 270,000-acre Tejon Ranch property is clearly visible to the east, miles of rippling grasslands that bleach to a crisp golden-blond in summer. For decades, the owners of this property that straddles Los Angeles and Kern Counties have attempted to build a residential development 70 miles from downtown Los Angeles: a 6,000-acre, 20,000-home master-planned community named .” Earlier this month, however, an L.A. County judge essentially blocked the development after a lawsuit challenged the developer’s environmental-impact report, claiming it didn’t accurately consider wildfire risk or greenhouse-gas emissions. Although the ruling doesn’t stop the development outright, it will make it significantly harder for the project to move forward without major changes. At first glance, a development like Centennial sounds like the ideal antidote to California’s housing shortage. Here’s a developer offering to contribute 20,000 homes to the region’s shortfall — 18 percent of which would be designated affordable — on what is currently the largest piece of private property in California. But Tejon Ranch is an especially egregious place to put a brand-new mini-city. Here in the foothills, the risk of wildfire is already very high, and adding humans makes a spark more likely, meaning the state will be forced to mount a costly defense of people and property. And then there’s the challenge of supporting 60,000 people essentially in the middle of nowhere — at least 30 miles from any major job centers or public transit — along with all the cars needed to haul them around and maintain their daily lives.

$20 million Newport Coast Mansion with Indoor Basketball Court. An ocean view Mediterranean-style mansion in Newport Coast is for sale where you can shoot hoops whenever the mood strikes. This unique estate has hit the market for $19.995 million. The indoor basketball court isn’t the only amenity to get your pulse racing. Completed in 2003, the 12,525-square-foot, four-story residence with six bedrooms and eight bathrooms that sits on nearly a half-acre lot is “an incomparable recreational retreat,” said Tim Smith of Coldwell Banker Realty, the listing agent. A custom slot car and a racing simulator outfit the 12-car garage designed to look more like a showroom. There’s a 1,068-bottle wine cellar, gourmet kitchen with blue Esmeralda countertops and top-of-the-line appliances and a wellness area with wet and dry saunas. Other amenities include a billiards room with a wet bar, a state-of-the-art home theater and a salt-water pool. A spa, custom stone fountains, limestone walkways with mosaic inlays, Mediterranean-inspired landscaping and multiple verandas contribute to the resort-style grounds. Inside, antiqued mirrored ceilings, marble floors, stone walls, ironwork, and Venetian plaster and JP Weaver molded ceilings with 24-karat gold complement the classical architecture. The expansive top-floor master retreat contains a fireside sitting area and a master bathroom that leads to a huge wardrobe featuring shoe display cubbies and rows of closet space. It opens to a large view terrace with a fireplace. Views of the ocean, harbor and golf course abound from throughout the property. And, yes, it is the former home of you know who…

New Book on L.A.’s Historic Buildings. If you’re a real estate investor, you spend your time dealing with (a) people, and (b) properties (and not always in that order). With respect to people, there are plenty of books for you to enjoy. With respect to properties, I’m excited to tell you about Ken Bernstein’s new book, “Preserving Los Angeles: How Historic Places Can Transform American Cities” (published by Angel City Press). For the last 15 years, as head of the city’s Office of Historic Resources, Bernstein in his new book shows off some of L.A.’s 1,200 designated Historic-Cultural Monuments and explains how preservation has propelled the city forward while respecting its past. Bernstein’s office teamed up with the Getty to survey almost 900,000 addresses, The effort revealed 50,000 pieces of astounding architecture and many hidden histories. With hundreds of photos, the book is also a treasure map of classic L.A. places you can get out and visit. Almost half the book is a field guide with 400 new photographs showcasing 35 communities and their places of deeper social and cultural history that had long been ignored or hidden in plain sight. Los Angeles is 470 square miles so there’s plenty of stories to tell. The Getty started the program for a massive citywide survey in 2000. This is the largest, most ambitious municipal survey of any city in the country. Bernstein researched the historic themes that shaped the development of the ethnic and cultural communities and geography. Bernstein did groundbreaking work with the first LGBT historic context statement for any large city in the nation, he did a Latino context, one for African Americans, and five Asian groups. This helped him identify the themes and forces that shaped those communities. Bernstein believes there is an important story to tell about how historic preservation has become a tool for community transformation. Downtown has seen so much change since the adaptive reuse ordinance was adopted in 1999. Bernstein talks about how a site like CBS Columbia Square has been preserved and reused as creative office space. Historic places can accommodate change and new growth, and his book explores these issues.

Ellen DeGeneres Flips Houses. Who needs a television show (with disgruntled employees and disillusioned viewers) when you can flip houses. Obviously, Ellen DeGeneres took my 2-day Flipping Boot Camp seriously. According to Los Angeles Magazine, since 2003, Ellen, and wife Portia de Rossi, have flipped more than 20 properties. Here’s a quick snapshot of nine properties they’ve flipped:

1. The Tree House. This midcentury modern bungalow on a wooded lot in Laurel Canyon, was purchased by DeGeneres for $1.3 million in 2004. She gave it a Zen makeover and sold it to director David Weissman the following year for nearly a million dollars more.
2. The Ogilvy House. DeGeneres and de Rossi lived in this lavish Montecito estate for less than a year before selling it for $20 million in 2007 to Google’s then-CEO Eric Schmidt.
3. Malibu Beach House. Once home to Brad Pitt and Angelina Jolie, this oceanside mansion boasts a private beach cove and stunning views of the Pacific Ocean. DeGeneres bought the newly renovated property from Pitt for $12 million in 2011, selling it for $13 million shortly thereafter.
4. The Laurence Harvey House. DeGeneres and de Rossi purchased adjoining properties in Beverly Hills for a total of $48 million and sold them as a combined estate to Ryan Seacrest for $37 million in 2012 (losing over $10 million), proving they are only human.
5. Brody House. Designed by architect A. Quincy Jones, this Holmby Hills residence is a masterpiece of modernist architecture. DeGeneres snagged it in 2014 for $40 million and sold it for $55 million six months later to Napster cofounder Sean Parker.
6. Rancho San Leandro. In 2017, DeGeneres and de Rossi purchased this equestrian compound in Montecito (next door to Oprah Winfrey’s estate). They sold it the following year to Sean Rad, founder of Tinder, for a profit of $4 million.
7. The Villa, Montecito. This Tuscan-style villa was built in the 1930s by architect Wallace Frost and restored years later by designer John Saladino. The home was purchased by DeGeneres and de Rossi in 2013 for $26.5 million. Netflix executive Ted Sarandos bought it from the couple in 2018 for $34 million.
8. Salt Hill House. DeGeneres and de Rossi purchased a Montecito estate for $27 million in 2018. The Balinese-inspired compound, which includes a koi pond, fitness cabana, and infinity pool overlooking the ocean, was sold for $33.3 million in late 2020.
9. Porter House. This English Tudor was bought and renovated by DeGeneres and de Rossi in January 2020 for $3.6 million. The new buyer, Ariana Grande, paid $6.75 million in 2020, a quick profit of at least $3 mil.
10. Beverly Hills House. In 2019, the couple purchased a 10,400-square-foot, ivy-covered mansion north of Sunset for $42.5 million from Maroon 5 frontman Adam Levine. Last month they sold it for $47 million, the second highest price sale in BH.


Don’t Worry, the Cinerama Dome Won’t Get Demolished. Designed in 1963 by Welton Becket — who also designed the cylindrical Capitol Records building a few blocks away — the Cinerama Dome was the world’s first all-concrete geodesic dome, made from 300 precast panels. A Buckminster Fuller–inspired geodesic dome with its signature red-and-blue Googie marquee has displayed the titles of premiering films for five decades. Beyond its space-age glamour, rising like a cratered moon from the Sunset Boulevard sidewalk, the form carried function; the theater was engineered for films made in a special format designed to be shown on its extra-wide curved screen. Hundreds of domed Cinerama theaters were planned across the country, only a handful were built, and this is the only one left in the world. Owing to its iconic history and design pedigree, the Cinerama Dome was declared a historic-cultural monument by the city of Los Angeles in 1998, which means it can’t be demolished — at least, not right away. Its protected status will delay any proposed demolition or alterations for at least one year. Just weeks after Los Angeles County movie theaters were cleared to reopen at 50 percent capacity, Pacific Theatres and ArcLight Cinemas announced that their more than 300 screens at 16 locations in and around L.A. were going dark for good, including one of the most famous movie theaters in the world: the Cinerama Dome. Pacific Theatres was the original developer of the dome, and remarkably, it has stayed in the same company’s hands all along. Local moviegoers, industry stars, and mid-century design enthusiasts are all distraught over its fate. A petition launched last week is well on its way to 21,000 signatures — it floats the idea that is not too far-fetched. The petition suggests that one of the streaming studios (whose business has boomed so dramatically during the pandemic), could buy it? Netflix, are you listening?

This Week. Looking ahead, the main events on the economic calendar this week will be the Federal Reserve’s monetary-policy decision and Chairman Jerome Powell’s post-meeting press conference on Wednesday afternoon (4/28), and Thursday’s (4/29) advance estimate for first-quarter Gross Domestic Product from the Bureau of Economic Analysis will be the highlights. On average, economists are forecasting that the U.S. economy grew at a 5.6% annualized rate in the first three months of 2021, versus fourth-quarter 2020’s 4.3%. Other data out next week include the Census Bureau’s March durable-goods report on Monday (4/26), the Conference Board’s Consumer Confidence Index for April on Tuesday (4/27), and the Bureau of Economic Analysis’ personal income and expenditure figures for March on Friday (4/30).

Weekly Changes:
10-year Treasury: Flat 000 bps
Dow Jones: Fell 200 points
NASDAQ Fell 100 points

Calendar:
Wednesday, 4/28: Fed Meeting
Thursday, 4/29: Gross Domestic Product
Friday, 4/30: CORE PCE Price Index