All Forum Posts by: Lloyd Segal

Thank you to both of you. 

Economic Update
(Monday, April 5, 2021)

Given the news from the labor, real estate, and manufacturing sectors, it's no surprise that “Consumer Confidence” in the U.S. has increased to the highest level since the beginning of the pandemic. This index from the Conference Board jumped from 90.4 in February to 109.7 in March, far above the consensus forecast and the best reading in a year. The rollout of the vaccine, the reopening of our economy, and the distribution of stimulus checks have certainly helped make consumers more optimistic about future economic conditions. So with this continuing optimism, let’s wash our hands, put on our face masks, get vaccinated, social distance, and get under the hood…

Employment Report. Restaurants and other businesses hired the most workers in March as the U.S. added 916,000 new jobs, signaling our economy is primed for a period of rapid expansion. Employment accelerated after the weather warmed and a decline in coronavirus cases allowed states to relax business restrictions. Further, rising vaccination rates gave Americans more freedom to venture out to eat, attend a game, travel or engage in other activities they would have avoided at the height of the pandemic. Plus, massive federal fiscal stimulus, including $1,400 checks for most households, also gave people more money to spend. Economists predict even faster hiring in the months ahead if most Americans get vaccinated and the coronavirus pandemic fades away (though it will take a while to know for sure). The official unemployment rate (“U-3 rate”), meanwhile, slipped to 6% from 6.2%, the Labor Department reported Friday. Yet the official rate doesn’t capture nearly 4 million people who lost their jobs last year and left the labor force. Economists peg the true unemployment rate at above 9%. A better measure of unemployment is the government’s so-called “U-6 rate” that includes people who’ve recently stopped looking for work as well as those who can only find part-time jobs. The U6 rate fell to 10.7% from 11.1%. It had reached a record 22.9% last April. Employment is likely to speed up through the spring and early summer if the vaccines do their job and keep the coronavirus pandemic at bay. Companies in leisure and hospitality hired the most people in March. They added 280,000 jobs to bring total employment gains in the past two months to 664,000. More Americans are going out to eat and the numbers are expected to grow as most of the country gets vaccinated and spring arrives. Just me you and me, people are eager to go out after being stuck at home for the past year. Nearly 350,000 people joined the labor force in March in another good sign, but the total is still about 3.9 million below pre-pandemic levels. Those missing workers are no longer counted in the official unemployment rate, helping to explain why the U-3 rate is relatively low now.

Unemployment Drops to 11.5% in LA County. Call it a double-dose of good news.
Los Angeles County’s unemployment rate dropped to 11.5% last month as the county added nearly 48,000 jobs. The Employment Development Department reports that the unemployment rate dropped more than a full percentage point from January’s 12.6% (though the rate was still more than twice as high as the 5% recorded in February 2020). Some 242,000 Los Angeles County residents entered the labor force looking for work. Previously, the labor force had been shrinking as residents gave up looking or chose to stay home to care for children or other family members. These positive developments coincided with a drop in the number of coronavirus cases and hospitalizations as the surge that began in November began to recede in February. Still, the county’s 11.5% unemployment rate was significantly higher than the statewide average of 8.5% and nearly twice as high as the 6.0% national average. The EDD also provided a breakout of unemployment rates by city. The unemployment rate for the county’s largest city, Los Angeles, was 10.6% in February, while the rate for the second-largest city, Long Beach, was 11.7%. The city with the highest unemployment rate was Lancaster at 15.7%, while the lowest rate for a city with significant employment was San Marino at 3.4%. On the closely watched payroll jobs front, the EDD reported that employers in L.A. County had 4.06 million people on their payrolls last month, a jump of 47,900 from January and the first increase in four months.



Home Prices Rise at Breakneck Pace. Home prices continue to increase at an incredibly fast pace across the country, according to two separate indices released Tuesday, adding to the financial pressures home buyers face amid rising mortgage rates. The S&P CoreLogic Case-Shiller “20-City Price Index” posted an 11.1% year-over-year gain in January, up from 10.2% the previous month. The separate and broader S&P CoreLogic Case-Shiller “National Price Index,” which covers the entire country, demonstrated an 11.2% gain year-over-year in January, representing the highest gain in nearly 15 years. Prices rose on a monthly basis in 19 of the 20 large cities tracked by Case-Shiller, with Cleveland being the only city to see prices drop. But who wants to live in Cleveland? Compared to January 2020, prices were up in all 20 cities the report tracks. Phoenix saw the highest rate of price appreciation with a 15.8% gain year-over-year, followed by Seattle and San Diego. January’s data remains consistent with the view that COVID has encouraged potential buyers to move from urban apartments to suburban homes. This demand may represent buyers who accelerated purchases that would have happened anyway over the next several years. The pandemic prompted a rush into the housing market. For example, cramped households eagerly sought out larger homes (with more outdoor space) further out in the suburbs and rural areas, while the rise of remote work also led to a need for more room. Plus, millennials are reaching their prime home-buying years. These buyers have encountered little supply of homes for sale, creating an incredibly competitive and stressful market. Until now, that’s caused home prices to rise quickly, but that could soon change. Chief among those challenges is the recent increase in mortgage rates. So this year, mortgage rates have risen over half a percentage point, and mortgage rates jumped above 3% for the first time since last summer. Higher interest rates mean higher housings costs for home buyers, naturally. As a result, home buyers will be forced either to lower their budget for the property they wish to purchase or exit the market entirely if owning a home simply isn’t within their means anymore. That could put some pressure on home prices, causing the rate of home price appreciation to slow later this year.

3D-Printed Housing Developments. The future is here! 3D-printed real estate is taking off in a big way. But this isn’t your grandmother’s desktop printer. These printers are huge, and they don’t spit out paper. They print out 3-dimentional concrete or polymer. ICON, a pioneer in 3D-printed homes in the U.S., just completed four homes in East Austin, Texas. In partnership with Kansas City-based developer 3Strands, the two- to four-bedroom homes are now on the market, starting in the $400,000 range. ICON prints the homes on site, using its Vulcan construction system, which spits out a “proprietary extrudable concrete.” This is the highest speed, lowest cost method. It also allows for the most flexibility in floor plans. Construction of the homes is 10% to 30% cheaper and several months faster than conventional construction. This is especially important given the rising costs builders are seeing for conventional construction materials, like steel, aluminum and especially lumber. There is also an acute labor shortage in the homebuilding industry. In contrast, 3D-printed homes require very few workers, as the printer does the bulk of the construction. A much larger community is being planned in Rancho Mirage, California, by competitor Mighty Buildings. Mighty just announced it will put up 15 3D-printed homes in what it deems “the world’s first planned community of 3D-printed homes.” Mighty claims the 3D printing production process eliminates 99% of construction waste and is 30-40% cheaper than traditional construction. It will also use solar energy. Whether made of concrete or a polymer, these homes have shown to be far more energy efficient, sustainable and resilient than conventional wood-built homes. Mighty is building all across California so they have been thoroughly tested and can withstand earthquake or wind. With demand for 3D-printed homes now so strong, the biggest challenge for these companies is how to scale up quickly. ICON has four 3-D printing systems, and is already building more.

Los Angeles is Bringing “High Design” to Granny Flats. In L.A., where the simple act of securing permits to build an average “granny flat” in an average backyard can turn into an epic battle with the city’s Department of Building and Safety, that could take weeks, if not months. But a new initiative organized by Mayor Eric Garcetti’s office in collaboration with our friends at the Building and Safety Department aims to change that — while offering very imaginative designs for accessory dwelling units (“ADUs”) (whose aesthetics generally lie somewhere between box and shed). Imagine, instead, a playful studio in the form of a flower, or a contemporary two-story apartment that offers minimalist chic at a backyard scale — all available as designs that have already been preapproved by the city for construction, thereby shaving weeks off the permitting process. More than a dozen designs for accessory dwelling units, known as “ADUs,” will be offered through the city’s “ADU Standard Plan Program,” launched last week. In its initial incarnation, the program will feature designs by a range of architectural studios, from the well-established to the up-and-coming. This is a valuable program for several reasons. First, it simplifies the construction of ADUs — a critical form of housing stock — in the midst of a severe housing shortage. Second, it supports the work of forward-thinking architectural firms at a time in which many of these firms have been financially hammered by the pandemic. Neither the quaint term “granny flat” nor the more clinical “ADU” gets at how critical this form of housing has become in Los Angeles over the last few years. State legislation enacted in 2017 led to an overhaul in the ways ADUs are regulated in the state, and made it easier for city planning departments to approve their construction. This has made it easier to insert additional housing into single-family neighborhoods in which high-density projects can trigger planning battles. Plus, they are generally more affordable than the market-rate housing produced by developers. In 2017, the city of Los Angeles received 1,980 applications for ADU construction. Last year, that figure was 5,374! With single-family homes making up more than 56% of the state housing stock, the creation of additional ADUs will contribute meaningfully to easing California's housing shortage.

Backyard Homes Project. Continuing on the subject of ADUs, Los Angeles is launching a project addressing our housing crisis. Called the “,” it hopes to bring innovation to a field where it's often hard to come by. Thanks to recent state measures easing regulations on accessory dwelling units (a.k.a. "ADUs," or "granny flats"), Los Angeles has been in the throes of an ADU mania. Thousands of applications have poured in from homeowners across the city, and the ADU has proved to be a lab for housing experiments. The premise of the Backyard Homes Project is to create a one-stop shop: Homeowners promise to rent their ADU to a Section 8 voucher holder for a minimum of five years. In exchange, the homeowners receive affordable design and construction, free project management and favorable financing. The project is led by LA Más, a local nonprofit run by architects, designers and planners who specialize in urban design innovation and aim to blaze a path for more cautious government and industry to follow. The goal of the program is to lower the barriers for low- or moderate-income owners to become landlords, generating long-term income. Design and construction of ADUs start at $100,000 for garage conversions or $130,000 for new construction. LA Más charges a flat fee of $8,000 for the design. Through the program, homeowners can qualify to refinance through the Self-Help Federal Credit Union. But unlike banks, this credit union will estimate the value of the property AFTER the ADU is built ("ARV"), thereby increasing the equity available to borrowers to borrow against. The new loan adds ADU construction costs to homeowners' existing mortgage balance. Later, homeowners pay the higher mortgage with the rental income that is subsidized by the Section 8 program. So, for example, the monthly mortgage payment might jump by $800, but the rental income is, say, $1,200. A UCLA CityLAB study suggests that ADUs are feasible for 10% of the 500,000 single-family lots in Los Angeles, evidence that there’s plenty of room for ADUS without bumping up against the limits of supply.

We Don’t Need to Save Every Unremarkable Building in LA. As Sunset Boulevard curves towards downtown Los Angeles, Taix French Restaurant sticks out like an anomaly amid the strip malls. A single-story green-and-cream French chateau replica festooned with gabled roofs, half-timbering, and clinker bricks. At a meeting of L.A.’s cultural-heritage commission last month, two historians dramatically recounted these Francophone flourishes in great detail, emphasizing French pronunciations like porte-cochère. It was the final plea — la dernière chance! — to convey the historic significance of the 60-year-old Echo Park restaurant, which is staring down demolition. This virus-fueled pandemic of shuttering business almost guarantees an accelerated loss of both a family-owned business like Taix and the building it currently occupies — these weird, irreplaceable structures that make up L.A.’s vernacular. The types of structures that a place like L.A. (if we’re being honest), has always been likely to destroy, pandemic or not. By nominating Taix as a cultural historic monument, the neighborhood heritage group aims to save the building, and therefore the business. But according to the restaurant’s owner, Mike Taix, it is already too late. Many of the “significant” architectural details cited by the historians, like pressed-tin ceilings, were not original, but had been added by Taix himself over the last 25 years. In fact — and here’s the twist — it was Taix’s own idea to remake the site into a new, large, mixed-use development, with housing on top floors and room for a smaller, more profitable restaurant on the ground floor. But dozens of longtime patrons vehemently disagreed with this strategy, showing up to the meeting to chastise Mike Taix for his decision. The superficiality of the building itself was not lost on L.A.’s cultural commissioners — “That brick is glued onto the wall,” said commissioner Richard Barron, adding “It’s not architecture. It’s Disneyland!” And while there are certainly structures in L.A. worthy of preservation on their own merit, Taix’s building clearly isn’t one of them. In other words, if the owner is explicitly saying his business won’t survive, keeping the building around as a cultural monument raises questions about what “culture” are we really trying to preserve?

Best Counties for Buying Single-Family Rentals in 2021. ATTOM Data Solutions just released its Q1 2021 “Single Family Rental Market” report, which ranks the best U.S. markets for investing in single-family rental properties in 2021. The report analyzed single family rental in 495 U.S. counties, each with a population of at least 100. The “Average Annual Gross Rental Yield” (annualized gross rent income divided by median purchase price of single-family homes) among the 495 counties is 7.7 percent for 2021, down from an average of 8.4 percent in 2020. But offsetting the declining yields for investors are improved financing terms for such rental properties. At the same time, house prices are rising faster than rents in most of the country. Good news for investors because as home ownership becomes less affordable it puts upward pressure on rents. The single-family home rental business is less profitable this year compared to last year across most of country, with yields on average deals decreasing. That’s happening as home prices on properties that investors are paying for, in most areas, are rising considerably faster than rents, which is cutting into their profit margins. Further, single-family home prices are rising faster than rents in 430 of the 495 counties analyzed (86.9 percent), including Los Angeles County, CA; Cook County (Chicago), IL; Harris County (Houston), TX; Maricopa County (Phoenix), AZ and San Diego County, CA. Prices are rising faster than wages in 391 of the 495 counties analyzed (79 percent), including Los Angeles County, CA; Cook County (Chicago), IL; Harris County (Houston), TX; Maricopa County (Phoenix), AZ and San Diego County, CA.

In-N-Out of Her Bradbury Mansion. If you need any further evidence that you’ve been to In-N-Out too many times, this is it! A mansion bought from burgers is back up for grabs in Bradbury. In-N-Out heiress Lynsi Snyder, whose grandparents founded the beloved fast food chain, listed her amenity-loaded mansion onto the market for $16.8 million. The Mediterranean-style retreat spans four acres in Bradbury Estates, a guard-gated community just a few ironic miles north of Baldwin Park (where Snyder’s grandparents Harry and Esther Snyder opened the first In-N-Out Burger in 1948). Snyder bought the place from former Dodger star Adrián Beltré for $17.41 million in 2012, records show. In 2017, Snyder tried to sell her estate for $19.8 million, but there were no takers. But even at $16.8 million, it’s the priciest property currently on the market in the San Gabriel Valley. The estate offers a world of its own with two homes that combine for more than 18,000 square feet, as well as a 3,400-square-foot recreation center, two-hole golf course, tennis court, basketball court, infinity-edge pool and cabana set among vineyards and fruit trees. Manicured gardens and a motor court approach the portico entry of the main house. Inside are 11 bedrooms, 13 bathrooms, a wine cellar, tasting room, billiards room, movie theater, and gym. A voluminous foyer with dual staircases kicks thing off, leading to chandelier-topped spaces such as a formal living room, formal dining room, indoor-outdoor great room, and double island kitchen. A native of Glendora, Snyder is president and owner of In-and-Out Burger. It has 358 locations across California and the Southwest, but none in Bradbury Estates (yet). Forbes puts her net worth at $3.6 billion. That’s a lot of burgers!

Toilet Paper Costs Are Going Up. Are you spending too much on toilet paper? If yes, I’ve got bad news you. No, toilet paper is not discontinued. Worse! Prices are going up! Kimberly-Clark, the maker of Scott toilet paper (and Huggies diapers), just announced they will soon start charging more for toilet paper (and related paper products) to counter dramatically rising lumber costs. The biggest tissue producer told U.S. and Canadian customers that it’s raising prices for most of their consumer products to offset “significant” commodity cost inflation (i.e. lumber), with percentage increases in the mid-to-high single digits. Nearly all price hikes will take effect in June and impact baby and childcare, adult care and Scott bathroom tissue businesses. The move by the maker of Kleenex tissues has triggered analysts’ expectations that more companies will start raising prices for tissue products as well. Toilet paper becomes the latest consumer good to be impacted by higher raw material costs during the pandemic. Early in the pandemic, if you remember back that far, toilet paper became a rarity on supermarket shelves as shoppers stockpiled essential staples amid curfews and lockdowns (attempting to stem the spread of COVID-19). But in 2021, toilet-paper makers now have their own supply challenges. These price increases were expected after the cost of pulp — a wood product used to make toilet paper — soared by 35% in the last year. And there’s a real estate irony in all this: These toilet paper price hikes are tied to a lumber shortage created by a huge upswing in homebuilding. Surging pulp is following record-high lumber prices, which have significantly increased the cost of construction and reduced wood inventories at mills across North America.

This week. Looking ahead, investors will continue watching decreasing Covid case counts and increasing vaccine distribution. Beyond that, it will be a light week for economic data. Of note, the ISM Services Index and Factory Orders will come out today (/405), and the PPI inflation data on Friday (4/09).

Weekly Changes:
10-year Treasury:  Rose 0.03 bps
Dow Jones:           Rose 100 points
NASDAQ                Rose 300 points

Calendar:

Monday, 4/05:   ISM Services
Monday, 4/05:   Factory Orders
Friday, 4/09:     PPI

Thank you!

Economic Update
(Monday, March 29, 2021)

This pandemic has really exposed the fault lines in our workforce demographics. It has exposed the divide between those who can work from home and those who can’t (deemed euphemistically “essential workers"). Working from home has been a privilege of the professional and managerial class. But that’s an exotic world for workers in the service sector such as food preparation and serving, personal care (i.e. hair, nails, and so forth), healthcare, and building maintenance. It was evident from the beginning that American’s unforgiving workplace and healthcare cultures would place the burden of the pandemic on ordinary workers’ shoulders. A huge portion of American workers simply don’t have the economic power to stay home, whether to care for family members or even give themselves a chance to recover from a viral infection, or the legal right to take off from work without losing their jobs or pay. So as we finally glimpse the “light at the end of the tunnel,” let’s once again acknowledge a very special THANK YOU to our essential workers. We could never have survived without you! In your honor, let’s wash our hands, put on our face masks, social distance, get vaccinated, and get down into the weeds…

Existing Home Sales Declined in February. Although still up 9.1% from a year ago, existing home sales took a tumble in February, as harsh winter weather and declining affordability weighed on closings. It also looks like widespread vaccine distribution, the reopening of our economy, and rising inflation expectations have all begun to show up in interest rates (with February alone posting a 50 basis point increase in 30-year fixed mortgage rates). Although rates are still down from early 2020, the upward trend represents a headwind for sales especially with median prices up 15.8% in the past year. Meanwhile, the low inventory of existing homes continues to be a drag on sales as well. Today's report shows that February inventories were tied with January as the lowest for any month on record back to 1999 (and down 29.5% versus a year ago). This is reflected in the months' supply (how long it would take to sell today's inventory at the current sales pace) of existing homes for sale, which is now only 2.0 months, just above January's reading of 1.9 (which was the lowest on record back to 1999). Notably, the inventory shortage is most acute at the lower end of the price spectrum, with available properties worth $500,000 or less posting 20% declines in the past year. However, despite these issues I still expect sales to rebound in the spring and remain robust in 2021. Why? Because the trend towards work-from-home is likely to remain in place even as pandemic-related measures are eased around the country. That means people who were previously tied to specific locations (typically in urban areas), will have more flexibility, making more space in the suburbs an attractive proposition. In addition, it also looks like there is still significant pent-up demand from the pandemic, with buyer urgency so strong in February that 74% of the existing homes sold were on the market for less than a month. Less than a month! Finally, here comes those pesky Millennials! According to Pew Research, in 2019 Millennials surpassed the Baby Boomers as the largest living generation. In 2020, for the first time, Millennials accounted for over half of new mortgages according to data from Realtor.com. As a result, look for Millennial sales to continue trending higher as more of this huge demographic enters the housing market.

New Home Sales Decline. New single-family home sales declined 18.2% in February to a 0.775 million annual rate, posting the largest monthly decline since 2013. But don’t be too concerned. Why? Because the sales of new homes are counted when the 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 last month's winter polar vortex had a larger impact on February's new home sales report (-18.2%) than it did on existing home sales yesterday (-6.6%). Look for a rebound in new home sales in March (while existing home sales continue to show weakness). That said, it wasn't all just severe winter weather that impacted new home sales in February. Affordability has been rapidly declining as well, with 30-year fixed mortgage rates having risen roughly 40 basis points in February alone. Apparently, widespread vaccine distribution, the reopening of our economy, and rising inflation expectations are finally showing up in interest rates. When paired with rising home prices, this represents a headwind for sales going forward. New home sales are also suffering from a lack of finished homes waiting for buyers. 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 48.1% over the past year (illustrating just how strong demand was in 2020). The good news is that builders are responding to this inventory shortage, with the number of single-family homes currently under construction at the highest levels since 2007. As more homes become available, you can expect demand will remain strong and push sales higher in 2021 and beyond. Further, Census Bureau projections show that the population of people ages 30-49 (so-called “Millennials”) is set to grow significantly through 2039, which should bolster housing demand for the foreseeable future. This will be a key homebuying demographic that you need to pay attention to. These are the future buyers of your properties.

New Home Construction Falters. Similar to the drop in new homes sales, a sharp drop in home-building activity occurred in February thanks to record-breaking winter weather. But don’t get alarmed. The fundamentals remain strong for the new-homes market. U.S. home builders started construction on homes at a seasonally-adjusted annual rate of 1.42 million in February, representing a 10.3% decrease from the previous month’s revised figure, the U.S. Census Bureau reports. Compared with February 2020, housing starts were down 9.3%. The pace of new permits for new housing units also slowed in February. Permitting for new homes occurred at a seasonally-adjusted annual rate of 1.68 million, down 10.8% from January. A slowdown in both the construction of single-family homes and multifamily buildings prompted the decline in housing starts in February. Single-family starts were down 8.5% nationwide, while multifamily starts fell 14.5%. February’s home construction data will likely prove to be an aberration in hindsight. Last month’s record-breaking cold weather — including a winter storm that crippled much of the state of Texas — caused a serious slowdown in home-building activity. But in the long run, the factors that had driven gain in home building during the latter half of 2020 remain in place for now. Mortgage rates are still historically low, and the COVID-19 pandemic has prompted many people to consider buying larger homes as “remote working” becomes a permanent arrangement for some. But years of under-building following the Great Recession means that the U.S. housing market now has a supply shortage, particularly on the existing-home front. As a result, even first-time home buyers are now increasingly considering purchasing newly-built homes given the lack of other options. This does not mean builders aren’t facing headwinds in their pursuit to construct more homes. Supply-side challenges are still constraining builders’ capacity. Among the headwinds, are escalating lumber costs, a lack of affordable lots to build on and regulations that drive up the cost of construction.

California Must Prioritize Housing Affordability. The reality is that COVID 19 has had widely disparate impacts on Californians in different socioeconomic groups. While wealthier residents are benefiting from low interest rates and a strong stock market, far too many essential workers continue to earn a sub-living-wage and can’t afford to buy a home (see my intro above). The economic harm from the pandemic combined with California’s long history of housing segregation by design (keeping certain neighborhoods exclusive to wealthy, white residents) have combined to make our already dire housing crisis even more extreme. Policies that make housing more affordable in a variety of neighborhoods “separates effort from reward.” Making it easier and less expensive to build homes that lower- and middle-class families can afford is a disincentive to “study, work, invest, invent, or ever set an alarm clock.” This is an insult to the many who are struggling to keep their small businesses afloat, working full-time, paying college debt, and raising children. They should be able to live in safe neighborhoods with access to good schools, parks, and transit. But they simply cannot afford it when the median home price in L.A. County is now over $700,000. These barriers are systemic and not simply overcome by “working harder.” Yet many are adamantly against reforming our housing laws, investing in our underserved populations, and building new homes to reduce costs and increase housing affordability. Even as our lawmakers try to address the problems that have long plagued our state, opponents of housing reform would have us believe that any action to make housing more affordable and accessible is wrong and damaging. Our State Legislature is currently evaluating a series of relatively modest housing bills that can make homes more affordable for homeowners and renters alike. These bills are intended to increase housing affordability by increasing the overall housing supply and creating equitable conditions for hard-working Californians, regardless of their race and income. You may not be concerned with affordability, but as a real estate investor you really should be. After all, people should be able to live near their jobs, close to schools, and have convenient access to healthy food and reliable transit.

City Council Passes Program for Tenants and Landlords. Landlords, here’s some good news. With renters owing thousands of dollars in back rent to landlords since the pandemic started, the Los Angeles City Council announced an additional $259 million for its COVID-19 “Emergency Renters Relief Program.” That's more than twice what it provided last year. The average renter owes between $4,000 and $7,000 to landlords, according to City Council President Nury Martinez. To qualify for the program, the tenants’ combined household income must be at or below 50% of the median income – for a family of four, that's about $56,000. Martinez said the program is aimed at those who are most in need: "I know the daily struggle of the working poor people who have worked for decades to escape poverty. Working in back of houses, in restaurants, looking after other people's children and working in factories, all of this, only to run into the risk of facing it again during this crisis." The relief program will pick up 80% of your tenant’s back rent if you (as the landlord), agree to cover the remaining 20%. But if you don't agree, the program will only cover one-quarter of your tenant’s back rent and one-quarter of their upcoming rent for the next three months. The application window opens at 8 a.m. on March 30 and runs through April 30. Plus, if your tenant fails, or refuses, to apply, you (as the landlord) can apply for the program by phone with L.A.'s Housing and Community Investment Department, or via its website at: https://hcidla.lacity.org/.

New Tsunami Map Details Hazards for LA County. As if the pandemic is not enough to worry about, now we have tsunamis to keep us up at night. A newly updated interactive tsunami map for Los Angeles County allows you to type in your address to determine whether in a tsunami your home will be buried in a surge of seawater. How re-assuring. The California Geological Survey (“CGS”), which developed the map, claims that by using new data and improved computer modeling, it updates 2009 inundation maps showing how far inland a surge of seawater might go in a worst-case scenario. CGS is using a thousand-year scenario as the baseline for their new maps, hoping to avoid the tragic loss of life experienced in Japan’s tsunami. While damaging tsunamis are infrequent in California, if you're on the coast, you need to be aware of this potential hazard. The CGS and the California Governor's Office of Emergency Services have advised several communities with isolated pockets of population and few roads for evacuation -- such as in Marina del Rey, the port of Long Beach, and the port of Los Angeles -- about their increased inundation areas. For example, a large tsunami could flood sizeable areas of Marina del Rey and Long Beach to an elevation of 15 feet. Flood levels for the Port of Los Angeles and the Port of Long Beach could reach elevations of 12 to 15 feet, which would inundate almost all of the land in the ports and some of the surrounding communities. Worse, the county's beaches have over a million visitors per mile of beach during summer weekends and holidays, posing an evacuation nightmare. According to CGS, the first surge of a worst-case tsunami would reach the Los Angeles coastline in only six hours. That may seem like a lot of time, but it will take at least an hour for the National Tsunami Warning Center to issue a warning to California and then additional time for wishy-washy local authorities to determine whether an evacuation is necessary. The bottom line is, if you're near the coast and feel strong shaking from a local earthquake or get an official notification to evacuate, run like hell to higher ground! The most destructive tsunami to hit California occurred March 28, 1964. Several surges (reaching 21 feet high) swept into Crescent City four hours after a magnitude 9.2 earthquake in Alaska, killing 12 people and leveling much of the town's business district. 

San Andreas Fault Is Moving Faster Than We Thought. Just in case you don’t have enough to worry about (see above), let’s throw earthquakes into the mix. Research released last week shows that a portion of the monstrous 750-mile San Andreas fault is moving much faster than scientists previously thought. It's called the Mission Creek strand and it runs through the Coachella Valley, from Indio, through Desert Hot Springs and into the San Bernardino Mountains. While it was long believed to have a slip rate of around 14 Millimeters per year, Science Advances’ research argues that it's actually around 22 millimeters! This particular strand of the San Andreas fault had previously been interpreted to not be active. But it's actually very active and is the fastest slipping fault along the San Andreas in Southern California. As a result, it has the highest likelihood of a large magnitude earthquake occurring in the future. A few millimeters might not sound like a lot (one inch per year) but when we're talking about massive tectonic plates pushing up against each other, the stress adds up. According to scientists, 6-9 meters of elastic strain have likely accumulated along the fault since the last quake (1726), which means when it finally releases, the ground will likely shift 20-30 feet. But whether it takes a single quake, or many of them, to shift that distance remains to be seen. Higher slip rates on faults means more risk. It means stress is accumulating faster on that fault and that we need either lots of smaller earthquakes or a few larger earthquakes to relieve that stress. All of which means that this particular strand on the San Andreas has a greater risk of rupturing than was previously understood. But there is good news, sort of. If a rupture occurs along the Mission Creek strand, its northwesterly orientation would divert much of the quake’s energy away from the L.A. Basin, sparing us some of the resulting devastation. Regardless of what happens on the Mission Creek strand, you know that sizable earthquakes (and resulting devastation) on the San Andreas are inevitable. Like... at any moment. So NOW is always a good time to get your earthquake kit ready.

Tom Cruise lists Colorado retreat. Anyone interested in a mountain retreat in the Colorado Rockies? I mention this because among the tree-laden hills and snow-capped peaks of Colorado, Tom Cruise has listed his scenic mountain retreat for $39.5 million. The estate spans 320 acres in the mountain town of Telluride, a popular skiing and hiking destination that has become a hot spot for second homes during the pandemic. Cruise, star of “Top Gun” and the “Mission: Impossible” franchise, has owned the property since the early 1990s. A mile-long driveway leads to the home, a 10,000-square-foot stunner made of bleached cedar timbers and native stone. The home has seven bedrooms and nine bathrooms. A great room has a dramatic floor-to-ceiling fireplace; there’s also a library, billiards room, gym and media room. The kitchen has a massive center island. In addition, there’s a three-bedroom guest lodge tucked among aspen groves, for when your LA friends stop by. Hiking trails snake through the forested grounds. Other high-octane highlights include a sports court, snowmobile track and dirt bike course. Cruise, 58, has film credits that include “Risky Business,” “Top Gun,” “Rain Man” and “The Last Samurai.” A winner of three Golden Globe Awards, he also received Oscar nominations for his roles in “Born on the Fourth of July,” “Jerry Maguire” and “Magnolia.” Five years ago, he sold his Beverly Hills mansion for $39 million.

American’s Shopping List. Newly released consumer spending data from the Bureau of Economic Analysis vividly illustrates how the pandemic changed our buying habits, showing which products we snapped up while others gathered dust on store shelves. During the early days of the coronavirus worried shoppers stocked up on toilet paper, Clorox wipes and hand sanitizer. Remember those days? But as the pandemic took hold and upended daily routines, COVID affected every sector, taking a toll in sometimes unexpected ways. For instance, sales of specialty cheeses shot up as bored consumers (with disposable income) looked to recreate a restaurant experience at home. Kidney beans sales rose too, a sign of financially-strapped households seeking cheap sources of protein. Those who could afford to do so, splurged on big-ticket luxuries, with spending on pleasure boats soaring 42% from $18.7 billion in February 2020 to $26.6 billion in January 2021. Meanwhile, spending on funerals and burial services increased by 38.1% during that time. In fact, funerals have been one of the few experiences that consumers have continued to spend money on Americans halted most other purchases involving gathering in groups. They stopped going to the movies, concerts, and amusement parks and they stopped traveling, taking vacations and staying in hotels. Consumers redirected their purchasing toward “the five pillars of the COVID lifestyle”: (1) working from home, (2) entertaining at home, (3) educating at home, (4) exercising at home, and (5) keeping a “healthy home” (keeping your homes clean and germ-free, which has in turn spurred sales of air purifiers and vacuum cleaners). The No. 1 way people used their spare time was by watching more TV, followed by cleaning more and cooking more. Spending on flat-screen TVs increased (a trend big-box retailers noticed after the government distributed stimulus checks), as did spending on subscription streaming services to watch on them (i.e. Netflix, Disney+, etc.). People have also been reading more, making music and gardening more, according to data on sales of recreational books, musical instruments and seeds. We stocked up on oranges to fortify our immune systems. But we bought far less cold and flu medicine, in part because social distancing and masks made getting sick a relative rarity. We increased our spending on new cars, but spent less on gasoline. Sales of orthotics drooped, likely a result of people who are often on their feet in restaurant and retail jobs being laid off in record numbers.

Ever Given Stuck in Suez Canal. I know, I know, this story has nothing to do with real estate, but I couldn’t resist. The next time your spouse complains about your driving, remind them that at least you’re not as bad as the captain of the Ever Given. What, you’ve never heard of the Ever Given? Where have you been all week – under a rock? The Ever Given is a giant cargo ship stuck in the Suez Canal. But this is no ordinary cargo vessel. The Ever Given (already a very strange name, right?) is a panama-flagged (Japanese owned, and operated by Evergreen Marine, a Taiwanese company) behemoth, over 1,312 feet long (as long as the Empire State Building is high), 193 feet wide, and weighing over 224,000 tons! It beached this week during a severe sandstorm, blocking the 120-mile Suez Canal, and stubbornly refusing to budge. But, come on, how hard is it really to navigate a ship straight? The front is apparently wedged into sandy clay. Egypt has tugboats and dredgers desperately trying to dislodge the ship, but so far without success. It could take days, even weeks, to free the ship and re-open the canal.. Worse, by this afternoon an estimated 300 cargo ships will be blocked from passing through the Suez Canal, holding up a staggering 12% of all shipping worldwide, costing billions daily. In the meantime, ships are already being re-directed to go around Africa, which is a longer and more dangerous journey. Just another dose of economic anxiety during an already turbulent year. But it is also exactly the kind of absurd story that defines our pandemic; a global catastrophe sparked by something as trivial as a strong gust of wind, sparking an abundance of laughter at the surreal stupidity of the situation. It’s almost tempting to root for the thing. Free the Ever Given! Free the Ever Given! Free the Ever Given!

This Week. Looking ahead, investors will continue watching decreasing Covid case counts and increasing vaccine distribution. Beyond that, The Conference Board’s “Consumer Confidence Index” for March will be released on Tuesday (3/30). The Institute for Supply Management’s Manufacturing (“ISM”) “Purchasing Managers’ Index” for March will be released on Thursday (4/01). Also on Thursday, the National Association of Realtors’ “Pending Home Sales” data for February will be released, as well as the Census Bureau’s “Construction Spending” for February. The key monthly “Employment Report” will be released by the Bureau of Labor Statistics on Friday (4/02). These figures on the number of jobs, the unemployment rate, and wage inflation are generally the most highly anticipated economic data of the month. The consensus forecast is for a gain of 525,000 non-farm jobs, following a 379,000 increase in February. The employment rate is expected to tick down to 6.00% (from 6.2%). So fasten your seat belts!

Weekly Change:
10-year Treasuries: Fell 0.05 bps
Dow Jones: Rose 300 points
NASDAQ: Fell 200 points

...and thank you for reading!

Thank you!  Please vote for it.

Economic Update
(Monday, March 22, 2012)

The TV commercial used to say “When E.F. Hutton speaks everyone listens.” Well, E.F. Hutton is no more. Now we have the Federal Reserve. And when the Fed speaks, truly EVERYONE listens! For example, this week the Fed said that it would keep current policy unchanged but increased its forecast for economic growth, prompting economist to predict interest rate increases in 2023. In response to a question about winding down the central bank’s bond-buying program, Fed Chairman Powell said that it is “not yet” time to start considering tapering its purchases. “When we see we’re on track, when we see actual data coming in that suggests we’re on track … then we’ll say so.” The central bank also said in its latest statement that it would keep rates near zero, and reiterated it would keep buying $120 billion of Treasuries and mortgage-backed securities until “substantial further progress” is made toward the central bank’s goals of maximum employment. So, with interest rates heading in the wrong direction, let’s wash our hands, put on our face masks, social distance, get vaccinated, and look under the hood….

Harsh Weather Weighs Down Retail Sales. Retail sales dropped by a seasonally adjusted 3.0% last month, the Commerce Department reports. Unseasonably cold weather gripped the country in February, with deadly snowstorms lashing Texas and other parts of the South region, curtailing sales. The decline last month also reflects the fading boost from one-time $600 checks to households (which were part of nearly $900 billion in additional fiscal stimulus approved in late December). Excluding automobiles, gasoline, building materials and food services, retail sales decreased 3.5% last month. (These so-called “core retail sales” correspond most closely with the consumer spending component of gross domestic product.) Still, last month’s drop in core retail sales left the bulk of January’s gain intact, and the decline was probably temporary (due to weather conditions). President Joe Biden signed his $1.9 trillion rescue package into law, which will send additional $1,400 checks to households as well as extend a government-funded $300 weekly unemployment supplement through Sept. 6. The anticipated rebound in retail sales will also be driven by an acceleration in the pace of vaccinations, which should allow for broader economic activity, even as the rate of decline in new COVID-19 cases has leveled off. Households have also accumulated $1.8 trillion in excess savings. But fasten your seat belts because economists forecast 7.0% growth this year! That would be the fastest growth since 1984 and would follow a 3.5% contraction last year (the worst performance in 74 years).

Home Flipping Sales and Profit Declined in 2020. ATTOM Data Solutions released its year-end “2020 U.S. Home Flipping Report,” which shows that 241,630 single family homes and condos in the United States were flipped in 2020, down 13.1 percent from 2019 (to the lowest point since 2016). Obviously, less investors are buying my book “Flipping Houses." The number of homes flipped in 2020 represented only 5.9 percent of all home sales in the nation during the year, down from 6.3 percent in 2019 to the same percentage seen in 2018. The declines in the number of homes flipped in 2020, as well as the portion of home sellers represented by investors, marked the first time since 2014 that both measures decreased annually. While flipping activity declined, gross profits and profit margins shifted in opposite directions. For example, profits rose in 2020, but profit margins dipped (the third straight year that returns on investments declined). Houses flipped in 2020 typically generated a gross profit of $66,300 nationwide (the difference between the median sales price and the median amount originally paid by investors). That was up 6.6 percent from $62,188 in 2019 to the highest point since at least 2005. But the typical flipping profit of $66,300 translated into a 40.5 percent return on investment compared to the original acquisition price. The latest ROI (before accounting for mortgage interest, property taxes, renovation expenses and other holding costs) was down from 41.5 percent in 2019 and down from 46.4 percent in 2018. The 2020 ROI also stood at the lowest point since 2011. Further, house flips as a portion of all home sales decreased from 2019 to 2020 in 126 of the 198 metropolitan statistical areas analyzed in the report. Among the 53 markets in the U.S. with a population of 1 million or more, those with the largest gross-flipping profits in 2020 included San Jose, CA ($274,000); San Francisco, CA ($171,000); New York, NY ($152,000); Los Angeles, CA ($151,500) and San Diego, CA ($147,750).

Los Angeles Homeownership Ranks Nation’s Worst (again). Congratulations Los Angeles! Another first! Again! Los Angeles county had the nation’s lowest home-ownership rate in 2020 for the third year in a row. Census stats, highlighting long-running home affordability challenges, show only 48.5% of L.A. households living in residences they own. That was the lowest rate among the 75 largest metropolitan areas tracked. In contrast, the top metro was Florida’s Cape Coral-Fort Myers at 77.4%. Despite historically low mortgage rates making homebuying popular in the pandemic year, L.A. ownership rose only 0.3 percentage points, the 20th smallest gain among the metros. In stark contrast, our neighbors in the Inland Empire have 65.8% of their households as owners — the region’s highest rate since 2009 (but still 29th lowest nationally). The gain was a 1.4 percentage-point improvement from 2019, but was the 28th smallest improvement among the 75 metros. Nationally, ownership rose 2 percentage points to 66.6%. The metro with the biggest gain was Birmingham, Ala., up 9.3 points to 76%. The worst performance was in Toledo, Ohio, which was down 6.6 points to 63.4%. The pandemic likely exacerbated the gap in ownership rates in the coastal L.A. metros vs. the more affordable Riverside and San Bernardino counties. Last year’s 17.3 point gap was a jump from the 13.5 point average difference seen in the previous five years. California’s overall ownership rate was 55.9% last year, third-lowest among the states. Best was West Virginia at 77.8%; worst was the District of Columbia at 42.5%.

Housing Starts Declined in February. Housing starts declined 10.3% in February to a 1.421 million annual rate. Starts are down 9.3% versus a year ago. The drop in February was due to both single-family and multi-family starts. In the past year, single-family starts are up 0.6% while multi-unit starts are down 28.5%. Housing starts fell for the second month in a row in February, largely the result of harsh winter weather across much of the country, which impeded construction activity. Given that February's job's report from earlier this month showed the construction sector had shed 61,000 jobs (the first decline in 10 months), the weakness in the report wasn't surprising. The decline in housing starts was also broad-based, with both single-family and multi-family construction posting declines. That said, anticipate a return to the upward trend in housing starts very soon, led higher by single-family homes. Why my confidence? First, despite a 10.8% decline in February, building permits for future construction remain near the highest level since 2006. Compared to a year ago, permits for single-family units are up 15.0% while permits for multi-family homes are up 21.4%! Moreover, permits have now outpaced new construction for seven consecutive months. This has resulted in a backlog of projects that have been authorized but not yet started, which is now the largest backlog in nearly 15 years. So, with plenty of future building activity in the pipeline and builders looking to boost the inventory of homes as well as meet consumer demand, look for both overall and single-family starts to post even higher highs in 2021. The only thing standing in builders’ way are lumber prices…

Insane Lumber Prices Continue. If you hangout in Home Depot, you already know that lumber prices have gone through the roof. So with lumber (and other building material costs) climbing to record-high levels, homebuilder confidence fell two points in March, per the latest report from the National Association of Home Builders. That drop in builder confidence is in spite of sky-high buyer demand (see above), which hasn’t waned despite rising home prices and climbing mortgage rates (the latter up 30 basis points from February). The pandemic shut down a large swath of lumber mills in early 2020, handcuffing construction crews all over the country, causing a lack of new homes for sale, forcing home prices upward. NAHB Chairman Chuck Fowke noted that supply shortages and high demand have caused lumber prices to jump “about 200%” since April 2020! The elevated price of lumber is adding approximately $24,000 to the price of a new home. Though builders continue to see strong buyer traffic, recent increases for material costs and delivery times, particularly for softwood lumber, have depressed builder sentiment this month. A Homesnap report said new home listings increased only .22% in December, while total sales increased 19.29%. Like most facets of the current housing environment, the continued successful rollout of the COVID-19 vaccine should do wonders for the cost of building materials, as more lumber plants reopen in Canada and the U.S. – thus, increasing inventory and driving overall prices down. And with more homes being built, overall sentiment – and builder confidence – should rise.

Filming in Los Angeles Begins to Rebound. As you know, Los Angeles is a “company town.” And that company is film and TV production. Everyone you know is probably in te film business, near the film business, services the film business (i.e. housing), or wishes they were in the film business. So as the business goes, so goes LA’s economy. I bring this up because FilmLA, the organization that tracks production in our city, says it received 777 film permit applications in February. This represents a 43 percent increase compared to January! That’s really good news for our company town. The organization notes that a late-month surge in production took place, making February the third busiest month Los Angeles has experienced with regards to filming since last June. That said, production activity remains around 40 percent below normal for this time of year. Of course, production first restarted last June after a roughly three-month-long shutdown due to COVID-19. But in the 37 weeks since the city has been reopened for filming, FilmLA has processed approximately 5,533 film permit applications spanning 3,789 unique projects. As new COVID-19 case counts continue to diminish and more projects restart production, you can be optimistic that our local film economy will soon be back on track. Further, on-location filming (for months conducted safely in observance of strict health protocols), will rise again with the reopening of businesses and expanding vaccine availability. As for feature films shooting in the area, most have been indies. Some of the larger productions, include the Michael Bay-directed Ambulance with Jake Gyllenhaal, A24’s C’Mon C’Mon starring Joaquin Phoenix, and Netflix’s Sweet Girl with Jason Momoa and Marisa Tomei.

Don’t Hold Oscars at Union Station. Speaking of movies, it seems as Hollywood will get a reprieve from the Academy Awards annual disruptions this year. The Oscars, like so many other American institutions, are operating on a COVID-19 delay, with the nominees just announced last week, a full two months late. Now the Academy is eyeing a ceremony on April 25, and loosening-but-still-not-all-that-loose state restrictions will allow for some kind of low-capacity, in-person gathering. Apparently the Dolby Theatre is still under contract and will be used “” this year. But instead of filling the Dolby with an audience full of those celebrity cardboard-cutout heads normally used for rehearsals (with real humans in every fifth seat), the Academy has opted for a smaller, “supper club”–like ceremony at a different venue: Union Station. With its cinematic arched entrance plazas and grand ticketing halls — which have, of course, appeared in thousands of films and TV shows — the 1939 landmark won’t need weeks of staging from the glam squad. But what about the disruptions to commuters who are dependent on the buses and railroads? In response, Metro has promised that no bus or rail service will be affected, and that they are “working hard to minimize disruptions around Union Station.” But as anyone who has been there during a film shoot knows, navigating closed-off entrances and heavily patrolled detours, it will end up negatively impacting people who rely on transit. In fact, “chaos” is the word that immediately comes to mind. It also seems extremely likely that the large “unhoused community” living near Union Station will be chased off to someplace else. It’s too bad, really, that the Oscars passed over a much better alternative for holding a ceremony that’s outdoors enough to be safe, wouldn’t create any disruption, and might have allowed more people to attend. Apparently, the Academy’s location manager wasn’t talking to the casting manager. Because if you are facing the front entrance of Union Station, all you have to do is turn around and look up the hill to see it. Dodger Stadium — with its 16,000-space parking lot — has played many essential roles during the pandemic. The Oscars could have been its best “role” yet.

Michael Govan Chillin’ in a Trailer Park. You can tell a lot about a museum by where its director lives. For instance, Ann Philbin, who has spent the last 20 years turning the Hammer into a bastion of progressive art, occupies a predictably gorgeous midcentury architectural gem in Beverly Hills. The Museum of Contemporary Art’s more iconoclastic Klaus Biesenbach, on the other hand, has set up housekeeping in a massive converted downtown-adjacent warehouse—a space he shares with his pet duck, Cupcakes —decorated with palm trees, midnight-blue walls, and a lone bed as its main piece of furniture. But what about Michael Govan, the controversial LACMA director who’s demolishing the museum’s Miracle Mile campus to make room for the new $750 million David Geffen Galleries? At the moment, he’s camped out in a trailer park in Malibu. Govan, 58, has been doing a lot of house-hopping lately. Until last fall, he’d been living in a 1926 Tudor-style, five-bedroom, 5,800-square-foot mansion situated “on the best street in Hancock Park,” as a recent Trulia listing describes the property. But in November, the owner of the house—Museum Associates, the nonprofit providing LACMA with financial backing—sold the mansion for $6.7 million. At that point, Govan, who’d been living in the home for free since he started as director in 2006, downsized to a more modest (but still rent-free) $2.2 million, 3,300-square-foot Spanish Revival in Mid-Wilshire (owned by the museum). But after occupying that house for less than four months, Govan “self-evicted” and had the museum put it up for sale in order to refill LACMA’s coffers (after it took a financial beating during the pandemic). It’s unclear where Govan will be settling down next—the makeshift Malibu digs are obviously temporary housing. But it does, as Govan suggest, give new meaning to the term “trailer trash.”

What Mayor Garcetti Might Borrow from Mr. Mayor. When the NBC sitcom Mr. Mayor debuted, the show presented itself as a lighthearted dig at local politics. Ted Danson plays Neil Bremer, a wealthy retired businessman who makes billions in outdoor advertising, gets bored, and runs for mayor of Los Angeles to impress his teenage daughter. In the very first scene of Mr. Mayor, we learn that Neil’s predecessor abruptly resigned during a nightly coronavirus briefing, bolting from the podium. On the evening that scene aired, L.A.’s real-life mayor, Eric Garcetti, stood at his own podium and reported that Angelenos were dying of COVID-19 at a record-breaking rate of one every eight minutes. Mr. Mayor may have been sold as escapist comedy, but it’s honestly not very escapist for Angelenos. Even Garcetti himself was too preoccupied to watch, according to a spokesperson. But for City Hall insiders, it’s the details that make Mr. Mayor hit extremely close to home. Neil lives in a grand, Tudor-style mansion that’s a dead ringer for L.A.’s mayoral residence, Getty House. The cramped Art Deco offices of City Hall, which the show’s production designers toured in 2019, are accurate down to the laminated ID badges. Along the way, this L.A.-of-the-very-near-future program proposes some better-than-current-day policy solutions. With the season over, here’s a look back at five good ideas from Mayor Bremer’s fictional city — that should happen in Mayor Garcetti’s real-life Los Angeles:

1. 1. Cut down all the palm trees (replace with water conserving trees).
2. 2. Stop drilling for oil (save our environment).
3. 3. Ban flying-taxi services (save our skies).
4. 4. Build in rich neighborhoods (everyone should share the burden)
5. 5. Add more bus lanes (improve our traffic flow).
6. No word if Mr. Mayor will be renewed for a second season, but Garcetti won’t be renewed — he’s termed out in 2022.
   
   

This Week. Looking ahead, investors will continue watching decreasing Covid case counts and increasing vaccine distribution. Beyond that, this will be a busy week for economic data. The National Association of Realtors’ existing-home sales for February will be released today (3/22). The Census Bureau’s reports on new-home sales for February will be released tomorrow (3/23). The Census Bureau’s February durable good report – seen as a decent proxy for business investment – and HIS Markit’s manufacturing and service purchasing managers’ indexes for March will be releases on Wednesday (3/24). On Thursday, the Bureau of Economic Analysis’ third and final report for fourth-quarter 2020 GDP is expected to be unchanged from its second estimate in late February (at a 4.1% annualized rate of growth). On Friday (3/26), the Bureau of Economic Analysis will release Personal Income and spending data for February. Also on Friday (3/26), the Federal Reserve’s preferred measure of inflation, the personal consumption expenditures price index (“Core PCE”) for February will be released.

Weekly Change:
10-year Treasuries:  Rose 0.10 bps
Dow Jones:             Fell 200 points
NASDAQ:                 Fell 100 points

Calendar:
Monday, 3/22:       Existing Home Sales
Tuesday, 3/23        New Home Sales
Friday, 3/26:          Core PCE

For further information, comments, and questions:

Lloyd Segal
President

April General Meeting. Please join the Los Angeles Real Estate Investors Club and Ventura County Real Estate Investors Association for our joint April 8th (7:30 to 9:30 pm) virtual meeting:

Guest Speaker: We are proud to have William “Wild Bill” Bronchick visiting us from Aurora, Colorado. Bill is a nationally-known attorney, author, investor, entrepreneur, and public speaker. Bill has been practicing law and investing in real estate since the early 90’s, having been involved in thousands of real estate transactions. He has trained countless people all over the country to become financially successful, speaking to audiences of as many as 16,000 at mega-events, sharing the stage with names like Steve Forbes, Robert Kiyosaki, Lloyd Segal, and Colin Powell.

His best-selling book, “Flipping Properties” was named one of the ten best real estate books of the year by the Chicago Tribune. Bill is also the author of the highly acclaimed books “Financing Secrets of a Millionaire Real Estate Investor,” “Wealth Protection Secrets of a Millionaire Real Estate Investor,” “Defensive Real Estate Investing,” “How to Sell a House Fast In a Slow Market,” and his newest book, “35 Ideas for Finding Good Real Estate Bargains.”

Bill is the co-founder and past President of the Colorado Association of Real Estate Investors. Which must come naturally to Bill because (and I love this connection) he is also the son of our late Phyllis Rockower (founder of our Los Angeles Real Estate Investors Club). Bill is licensed to practice law in New York and California and is a member of the Colorado and American Bar Associations. He is also a licensed real estate broker in Colorado.

The title of Bill’s presentation is “35 Tips for Finding Good Real Estate Bargains.” During his presentation, you will learn:

- How to find all the deals you'll ever need, even in a "hot" market

- Dozens of ways you never thought of for finding motivated sellers

- How to make a value play to a seller to get him to do business with you

- Five ways to make a marketing piece that GETS OPENED!

- Stop dealing with dead leads and unmotivated sellers!

Free Admission: Admission to our monthly meetings is always FREE (COMPLIMENTARY), but reservations are required.

RSVP: Please RSVP directly on our website: www.LAREIC.com so that you can receive your Zoom login and password. Be sure to RSVP as soon as possible because these virtual events sell out.

Economic Update
(Monday, March 15, 2021)

Almost exactly one year ago, March 11, 2020, the World Health Organization declared a “Pandemic” for the first time in a hundred years. Look at all that has happened in the past twelve months; over a half million people have died, millions more sickened, over ten million workers still out of work, and our economy struggling to gain its footing. Despite these challenges, I have seen acts of human kindness that bring tears to my eyes. And thanks to several gigantic government stimulus packages, vaccines developed in record time, and essential workers dedicated to the cause, we have survived and adapted. Today, as we have adapted, we can finally see the “light at the end of the tunnel.” So with “adaptation” on our minds, let’s wash our hands, put on our face masks (yes, you!), social distance, and shake the tree…

The Consumer Price Index. The Consumer Price Index (“CPI”) rose 0.4% in February, matching consensus expectations. The CPI is up 1.7% from a year ago. If you remember, prices dropped at a steep 4.4% annual rate in March thru May last year as the COVID-19 and related restrictions hit our economy. Since then, they've grown at a 3.8% annual rate, the fastest pace of price gains in nearly a decade! The typically volatile food and energy categories played a significant role in February, as energy prices rose 3.9% (led by a 6.4% jump in the gasoline) and food prices increased 0.2%. Note that when measuring housing, the Bureau of Labor Statistics uses rental prices, which have been held down by government moratoriums on evictions as well as a shift away from rental (as people flee to the suburbs). As a result, "core" inflation was up only 0.1% in February and is up only 1.3% versus a year ago. But I like to follow "cash inflation," which is everything in the CPI except for owners' equivalent rent. Cash inflation increased 0.4% in February and is up at a 4.4% annual rate since prices began to rise last June. A dig into the details shows higher prices for medical care, recreation, and motor vehicle insurance were offset by lower costs for airfare, apparel, and used autos. Overall, the fundamentals point to higher inflation in the next few years. For example, the M2 money supply is up more than 25% in the past year. And government stimulus checks and boosted unemployment insurance payments in response to the pandemic have replaced more than 100% of lost wages for many workers, all of which inevitably leads to inflation. So don’t say I didn’t warn you. Nevertheless, don't expect that to change the Fed's plan to keep short-term rates near zero…at least for the foreseeable future.

Foreclosure Activity Sees an Uptick. ATTOM Data Services released its latest “2021 U.S. Foreclosure Market Report,” which shows there were a total of 11,281 properties with foreclosure filings (i.e. default notices, scheduled auctions or bank repossessions) in the United States in February, up 16 percent from a month ago (but down 77 percent from a year ago). Federal Government’s foreclosure moratoriums and lenders mortgage forbearance programs continue to keep foreclosure activity historically low. These government actions, and the efforts of lenders and mortgage servicing companies, have helped millions of homeowners avoid foreclosure during a year-long global pandemic and recession. States with the highest foreclosure rates were Utah (one in every 3,883 housing units with a foreclosure filing); Delaware (one in every 5,219 housing units); Florida (one in every 6,232 housing units); Illinois (one in every 6,336 housing units); and Louisiana (one in every 7,923 housing units). Metropolitan areas with a population greater than 1 million, with the worst foreclosure rates in February 2021 including Cleveland, OH were: Jacksonville, FL (one in every 5,707 housing units); Riverside, CA (one in every 6,478 housing units); Birmingham, AL (one in every 6,532 housing units); and St. Louis, MO (one in every 6,651 housing units). Despite the government moratoriums and lender forbearance programs, lenders started the foreclosure process on 5,999 properties in February 2021, up 15 percent from last month (but down 78 percent from a year ago). How is that possible? Because loans on commercial properties, investment properties, and properties that are vacant and abandoned do not always have the same protections. This could be why we’re seeing a slight increase in foreclosure starts despite the government programs. The counties that had the greatest number of foreclosure starts in February 2021 included: our very own Los Angeles County (leading the way with 234 foreclosure starts); followed by Utah County, UT (224 foreclosure starts); Cook County, IL (154 foreclosure starts); Harris County, TX (97 foreclosure starts); and Riverside County, CA (74 foreclosure starts).

“The One” in Foreclosure. Speaking of foreclosure, our friend Nile Niami is in foreclosure again. For years, spec developer Niami has teased “The One” — a 100,000-square-foot mega-mansion in Bel-Air that he hoped to sell for $500 million. But his plans are now in peril. Niami, known for his brazen personality and wildly ambitious real estate projects, borrowed $82.5 million from Hankey Capital in 2018 to build this extravagant home. Over the last three years, that debt has ballooned to more than $110 million, the loan has come due, and now Hankey wants its money. The lender just recorded a Notice of Default, the first step in the non-judicial foreclosure process. If Niami can’t repay the loan within three months, a trustee for Hankey will schedule a trustee’s sale approximately 21 days thereafter. There are multiple solutions for Niami to avoid a forced sale of the property, which include paying back all (or at least some) of the loan or coming to an alternative agreement with the lender. But default notices are nothing new for Niami. He received two in 2020 alone. Profitable sales have been hard to come by for Niami lately. After listing an over-the-top Beverly Hills home dubbed “Opus” for $100 million, he sold it last year for $38.3 million. The buyer turned out to be Joseph Englanoff, one of Niami’s lenders for the project. Englanoff took control of the property, rebranded it and sold it for $47 million later that year. The One estate stretches across eight acres on a promontory lot and centers on a 100,000-square-foot palace that looks more like a futuristic spacecraft than a home. He originally planned to list it for $500 million in 2017, but the home still hasn’t hit the market — a costly delay since the property’s annual tax bill comes in at more than $1 million. Last summer, he posted a cryptic video on his Instagram account declaring it was 10 weeks away from completion, saying, “Seven years ago, I had an idea to create the biggest, most expensive house in the urban world: The One Bel-Air. And I did it.” Well, he may have done it, but he didn’t sell it. If the One goes to auction, it will also be the most expensive foreclosure of a single-family residence in the history of California.

How Industrial Became LA’s Hottest Real Estate Category. Industrial properties have become “the darling of the commercial real estate world.” With $4.8 billion in industrial sales, 2020 was the second busiest year on record for sales volume in the L.A. metro region. There was a slight pause on sales just after the pandemic began, but by the fall, properties were jumping off the shelf. The number of deals that closed this year was similar to previous years, but deal sizes were larger. The demand actually was greater than it was before the lockdown. Industrial has proven to be one of the most if not the most resilient of the asset classes that we’ve had in 2020 during this pandemic. It’s considered to be a less risky asset class. Why? Because Southern California industrial real estate is incredibly difficult to come by to begin with. Further demand from users has increased, and vacancies are very low. Further, the pandemic accelerated the growth of ecommerce, necessitating industrial growth to deal with increased demand. Plus, companies are looking at doing more manufacturing in the United States, also increasing industrial demand. Investors are looking at industrial as a safe haven for investment. I’m seeing a lot of investors migrating to industrial during the pandemic. As a result, there’s more money chasing industrial deals than there are deals. There is only a moderate amount of new construction. Because there is a limited supply, properties are especially valuable, especially newer industrial warehouses.

Project Roomkey is Alive Again. The goal of Project Roomkey (a federally subsidized effort to shelter homeless people in hotels and motels largely emptied by the pandemic), was to find rooms for 15,000 people in Los Angeles. Instead, at its peak, the program housed only 4,300 people. Still, that was 4,300 people off the streets for weeks if not months while COVID-19 was raging — and in rooms of their own. The program started to ramp down late last year as leases gradually ended and the Federal Emergency Management Agency stopped its reimbursements, which covered 75% of the costs. But on Jan. 21, President Biden signed an executive order calling on FEMA to raise that reimbursement rate to 100% through September (and this week, he made the full reimbursement rate retroactive to the start of the pandemic). That offers a tremendous boost to, arguably, the best shelter program Los Angeles city and county have ever run. Short of permanent housing, which continues to be the goal, this is the kind of individual housing — a private bedroom with a bathroom — that homeless people need during a pandemic and beyond. Here’s the biggest problem: The city and county have to shell out the money upfront for leases. FEMA tends to reimburse governments but very V-E-R-Y late. OK, it’s not quite that bad — in reality, county and city officials expect about an 18-month delay for reimbursement from FEMA. But that’s unworkable. County officials estimate they’ve spent a total of $108 million for which they can seek reimbursement from FEMA. At this point, the county has received $12.5 million in reimbursements. It’s good that the 100% reimbursement formula for newly leased rooms will be retroactive to all the rooms leased since Project Roomkey started last year. But it’s not feasible for the county and city to continue to spend tens of millions of dollars upfront while they wait a year or more for reimbursement. The best plan would be for the state to lend the city and county the money they need to go ahead with Project Roomkey. Those funds could later be paid back with the reimbursement from FEMA. City and county officials are already discussing the possibility of a funding arrangement with the state. With reimbursement a sure thing through September, officials should try to lease as many rooms as they can. There were 66,000 homeless people in the county at the last count — the majority of whom were living on the streets, not in shelters. But there are complications. Every hotel and motel in Project Roomkey is supposed to have a service provider on-site to help people obtain services and get into permanent housing. But the ranks of service providers are stretched thin. That’s a grim possibility that the city and county understandably do not want to face. But it shouldn’t stop them from aggressively pursuing all the hotel rooms they can secure now. Yes, they need an exit strategy. But with winter weather and a pandemic now gripping our region, homelessness is too much of an emergency to not find as many rooms at as many inns as they can.

The Ursidae Family. A member of the local Ursidae family is apparently determined to get a house in Eagle Rock this year. A prodigious black bear has been there twice in the past week, checking out the neighborhood, peering into windows, and scoping out preferable lot sizes. After all, based upon their lifestyle, the Ursidae family is more interested in exteriors than interiors (unless the open house includes a spread for visitors). This particular bear is probably looking for properties with large yards and pools (in preparation for the hot summers back in the forest). This would be logical since Eagle Rock has more pools per capita than the surrounding neighborhoods. The Ursidaes don’t normally looking for living spaces this far south of Angeles National Forest. But based upon the scarcity of inventory, they are apparently willing to deal with the eight-mile commute, which would take them under (not on) the 101 Freeway. In fact, this fella with the thick black coat has his sights set on properties in the 5200 block of College View Avenue in Eagle Rock, but hasn’t bothered to contact the owners or Realtors yet (Thank God!). The problem is this bear is confused about when open houses are scheduled. He keeps showing up at 2:30 am in the morning to look around. So, if you live in Eagle Rock, and you’re up at 2:30 am, and you see our friend roaming your street, let him know the open houses are at 2:30 in the afternoon (not in the middle of the night). And be sure to social distance, of course!

Did You Gain Weight During the Pandemic? If yes, don’t feel bad. You’re not alone. Most people have struggled to maintain their weight during the pandemic, with 61% of American adults reporting undesired weight gain since the coronavirus outbreak. But don’t take my word for it. According to a new  American Psychological Association (APA) "Stress in America" survey of more than 3,000 people, two in five of the surveyed adults (42%) revealed that they gained more weight than they intended over the past 12 months. And they put on 29 pounds, on average! Yes, you read that correctly – 29 pounds on average! In fact, one in 10 said they gained more than 50 pounds, which the APA notes is a textbook sign that people are struggling to cope with mental-health challenges. Duh! (Indeed, the report also found that one in three Americans is sleeping less during the pandemic, and more than half of parents said their stress level has increased). Some 54% reported that they were exercising less, and 68% admitted that they were snacking more. And this has led to people commiserating with alcohol and comfort food during the pandemic. As it turns out, we don’t need to social distance from other people, we need to “social distance” from our refrigerators! But in a sick twist, this extra weight that people gained as a result of the pandemic can actually make them more susceptible to COVID-19. COVID did indeed bring us a year of epic uncertainty. And grown-ups aren’t the only ones with growing waistlines as the country sheltered-in-place. Veterinarians report that pets are getting pudgy, too. Banfield Pet Hospital, the nation’s largest veterinary practice with hospitals in 42 states, surveyed 1,000 dog and cat owners. Some 42% of pet parents confessed that their pets had gained weight during quarantine.

This Week. Looking ahead, investors will continue watching decreasing Covid case counts and increasing vaccine distribution. Beyond that, Retail Sales will be released on Wednesday (03/16). Since consumer spending accounts for over two-thirds of all economic activity in the US, the retail sales data is a key indicator of growth. The next Fed meeting will take place on Wednesday (03/17), but no policy changes are expected. Housing Starts also comes out on Wednesday (03/17).

Weekly Change:
10-year Treasuries:        Rose 0.03 bps
Dow Jones:                   Rose 1.00 points
NASDAQ:                       Rose 300 points

Calendar:
Tuesday, 3/16:               Retail Sales
Wednesday, 3/17:           Fed Meeting
Wednesday, 3/17:           Housing Starts