Monday Morning Quarterback

Monday Morning Quarterback

(Monday, June 10, 2024)

Young people in the U.S. are so frustrated by the real-estate market that “housing affordability” has become the top issue influencing their vote in this November’s election, according to a new survey by Redfin. Record-high home prices, elevated mortgage rates and expensive rents have made housing affordability a key election issue for younger voters. Ahead of the upcoming presidential election, housing affordability was ranked as the most important election issue for Generation Z (who are currently age 18 to 27), based on a recent survey of 3,000 homeowners and renters in the U.S. The second- and third-most important issues for Gen Z respondents were the strength of the overall economy and education, respectively. The sentiment comes at a time when it’s more expensive than ever to buy a home. For months, home prices have continued to march upward to record highs, even as mortgage rates remain above 7%. The median home sale price in the U.S. at the end of May was $390,613, which is an all-time high. Escalating prices, and bidding wars in some markets, are making it unaffordable for many aspiring homeowners, who are already grappling with a rising cost of living. Once seen as the foundation of the American dream, owning a home is now out of reach for many. About 12% of Gen Z respondents believe they will never own a house, a separate Redfin survey found last year, when home prices and mortgage rates were lower than they are now. Overall, “housing affordability is a cornerstone of this year’s presidential election because even though the economy is fairly strong, unemployment is low and wages are rising, buying a home feels impossible for many Americans,” Elijah de la Campa, a senior economist at Redfin, said in a statement. As higher interest rates have driven up borrowing costs, Gen Z in particular has faced challenges with debt, with 42% saying they’ve received financial support from their parents, often for rent or housing costs. Meanwhile, in other real estate news, let’s get under the hood…

U.S. Needs 1.5 Million More Homes To Ease the Housing Crisis. The United States needs at least 1.5 million additional homes, and likely many more, to relieve the nation’s housing shortage, according to Freddie Mac. In the first quarter of 2024, the homeowner vacancy rate dropped to an incredibly low 0.8% from 0.9% the prior quarter, the mortgage buyer said in a recent report on the housing market. That’s well below the 1.6% average vacancy rate recorded from 1994 to 2003 (the period the report uses as a basis for comparison, and near the all-time low hit earlier last year.) Meanwhile, the rental vacancy rate remained flat for the third straight quarter at 6.6%, down from 8.2% during the historical comparison period. Rental vacancies touched four-decade lows in 2021 and 2022 and crept up slightly last year. Despite higher mortgage rates, the housing market has remained incredibly tight due to a shortage of homes for sale. Earlier this week, the benchmark index tracking U.S. home prices hit a new all-time high, after surging 47% in the past four years. The reason: Demand for homes continues to far outpace the available supply, pushing prices higher. To bring the vacancy rate, both rental and homeowner, back in line with historical averages, the U.S. would need to add an additional 1.5 million vacant for-sale and for-rent homes. Homebuilders have responded by constructing many new units, but have failed to keep pace with demand. Freddie Mac estimates the nation’s current housing stock at 146.4 million units, an increase of 1.6 million units from one year ago. The National Association of Home Builders has blamed a number of factors for stifling construction, including excessive regulations, inefficient local zoning rules, and costly building codes. The Freddie Mac report warns that the 1.5 million estimated shortfall of homes “is almost certainly a dramatic underestimate of the total housing shortage” because it fails to account for latent demand and vacant housing that is not on the market for sale or rent.

Dollar Tree Takes Over 170 99 Cents Only Store Locations. Dollar Tree Inc. is taking over leases of 170 99 Cents Only Stores across Arizona, California, Nevada and Texas, including a number in Southern California. As you’ve heard, Commerce-based 99 Cents Only Stores filed for Chapter 11 bankruptcy on April 7 after failing to find prospective buyers and renegotiate with creditors. The company cited debt-related challenges and the costs of doing business as reasons for the filing, which came days after the company announced a shutdown and liquidation sale of its 371 stores. The Dollar Tree deal was approved by the United States Bankruptcy Court for the District of Delaware. The company also acquired the North American intellectual property rights of 99 Cents Only Stores and some on-site goods. “As we continue to execute on our accelerated growth strategy for the Dollar Tree brand, this was an attractive opportunity to secure leases in priority markets where we see strong profitable growth potential,” Michael Creedon, Jr., Dollar Tree’s chief operating officer, said in a statement. “The portfolio complements our existing footprint and will provide us access to high quality real estate assets in premium retail centers, enabling us to rapidly grow the Dollar Tree brand across the western United States, reaching even more customers and communities.” In a release, Dollar Tree said it could open locations in former 99 Cents Only Stores as soon as this fall. Dollar Tree has nearly 17,000 locations operating under Dollar Tree, Family Dollar and Dollar Tree Canada brands. 99 Cents Only Stores was founded in 1982 by Dave Gold. It quickly took off, expanding out of its initial Ladera Heights location. It went public in 1996 but was taken private in 2011 when private equity firm Ares Management and the Canada Public Pension Plan Investment Board bought out the shares in a $1.6 billion transaction. In its bankruptcy filings, Chief Restructuring Officer Christopher Wells said the company faced supply chain issues, retail theft and rising inflation, among other issues, in recent years. 

Home Prices Reach New High Case-Shiller Says. The S&P CoreLogic Case-Shiller “20-City House Price Index” rose 0.3% in March compared to the previous month (Case-Shiller are always 2-3 months behind). Home prices in the 20 major U.S. metro markets were up 7.4% in the last 12 months ending in March. But i broader measure of home prices, the National Index, rose 0.3% in March and was up 6.5% over the past year. (All numbers are seasonally adjusted.) In fact, the 20-City and the National Index are at all-time highs. A separate report from the Federal Housing Finance Agency also showed home prices rose 0.1% in March from the previous month, and were up 6.7% in the past year. And over the first quarter of 2024, home prices rose 6.6% as compared with last year, the FHFA reports. In case you were wondering, home prices rose the fastest in Vermont, New Jersey, and New York. The median price of a resale home was $392,900 in March, and a newly built home was $439,500. When looking at prices alone, the housing sector looks remarkably resilient, as prices keep going up. But the gains are driven by a scarcity of homes for sale, and with pent-up demand pooling on the sidelines, waiting for mortgage rates to fall, prices look poised to go even higher. Until more homeowners sell their homes and open up housing supply, prices will likely be stuck in an upward trajectory. Note that the Northeast has dethroned the Sun Belt in terms of home price growth. Pandemic-era hotspots, such as Tampa, Phoenix and Dallas saw “top-tier performance in 2020 and 2021,” but have since been growing at a slower pace. “The solid 0.3% [month-over-month] rise in house prices in March suggests that competition among buyers for the limited number of second-hand homes on the market remains strong,” Thomas Ryan, an economist focused on North America at Capital Economics, wrote in a note. “We expect that to continue for the rest of the year, consistent with our above-consensus forecast that house price growth will end 2024 at 5% [year-over-year].”

Luxury Home Sales Are At All-Time High. The U.S. luxury housing market is heating up again. A typical luxury home sold for $1.225 million in the first quarter of 2024, up 8.7% from the same period a year earlier, according to a new report from Redfin. Prices of non-luxury homes rose at roughly half that pace, up 4.6% to a median price of $345,000, also a record high. (Redfin defines luxury homes as those estimated to be in the top 5% of their respective metro area, based on market value, and non-luxury homes as those estimated to be in the 35th-65th percentile based on market value.) Nearly half (46.8%) of luxury homes bought during the last three months were purchased in cash. That’s the highest share in at least a decade and up from 44.1% a year earlier. In contrast, non-luxury sales haven’t posted an increase since the end of 2021. In fact, sales of non-luxury homes decreased 4.2% year-over-year, according to the report. In the first quarter of 2024, the total number of luxury homes for sale rose 12.6% from a year earlier, the most significant increase on record, according to the report. That’s compared with a 2.9% decline in non-luxury inventory. New listings of luxury homes soared 18.5% from a year earlier, the second consecutive quarter of double-digit increases. That’s roughly seven times bigger than the 2.7% increase for non-luxury homes. Inventories peaked for several reasons: Mortgage rates have a lesser impact on luxury homeowners because they’re more apt to buy their next home with cash or be financially able to take on a higher mortgage rate. Owners of luxury homes, many of whom have substantial equity, are putting their houses on the market to cash in while prices are at record highs. Luxury home supply has room to grow, as supply remained low during the first quarter.

10 most expensive U.S. home sales (Q1 2024):

1.   Miami, FL (Surfside): $48M

2.   Seattle, WA (Medina): $38.9M

3.   Los Angeles, CA (Malibu): $38.5M

4.   Glenwood Springs, CO (Aspen): $37M

5.   Santa Barbara, CA (Santa Barbara): $36.8M

6.   Hilton Head Island, SC (Yemassee): $35M

7.   Glenwood Springs, CO (Aspen): $33.5M

8.   West Palm Beach, FL (Lantana): $32.5M

9.   Santa Maria, CA (Santa Barbara): $32M

Nashville, TN (Nashville): $32M

Salvador Dalí’s Portlligat Estate. A labyrinth of a home set on the Portlligat Bay, Spain, Salvador Dalí’s asymmetrical abode began as a simple fisherman’s shack that he continued to add onto bit by bit, “Like a real biological structure…each new pulse in our life had its own new cell, its room,” as he once defined it. Over the course of forty years, Dali added new wing-like huts to further expand the home: an addition of 20 square meters here for a library and salon; some thirty-something square meters there for a workshop, dining room, and sleeping quarters, all whitewashed and bound together by mounds of brick and stone. As was Dalí’s nature, absurdist geometrical shapes abound, with staggered roofs, curved entryways, and bespoke windows of varying size and shape, each providing a different vantage point of Spain’s deep blue bay beyond. If you’re traveling to Portlligat this summer, you can arrange a tour of the home and discover its magic, filled with Dalí’s treasures. "A true painter is one who can paint extraordinary scenes in the middle of an empty desert. A true painter is one who can patiently paint a pear in the midst of the tumults of history." Salvador Dalí.

Saudi Arabia Forced To Scale Back Plans For Desert Megacity. It was once billed as a glass-walled city of the future. An ambitious centerpiece of the economic plan backed by Crown Prince Mohammed bin Salman to transition Saudi Arabia away from oil dependency. Now, however, Bloomberg reports that plans for the mirror-clad desert metropolis called “the Line” have been dramatically scaled down and the project, which was envisaged to stretch 105 miles is expected to reach just a mile and a half by 2030. Dreamed up as one very long linear city that would eventually be home to 9 million people on a footprint of just 13 square miles. Already at least one contractor has begun dismissing workers. The project, which had been slated to cost $1.5 billion, was pitched as a reinvention of urban design. However, it has long attracted skepticism and criticism, not least after the reported execution of several members of the Howeitat tribe who protested plans to construct on their ancestral lands. Then there were reports of Prince Mohammed’s changing vision for the project, budget overspends and an ever-changing roster of key staff (with some who have worked on the project describing it as “untethered from reality”). The linear city was envisaged as being car-free and connected by the world’s fastest trains going back and forth without ever turning. According to Bloomberg, the scaling back of the Line comes as the overall budget for 2024 has yet to be approved by Saudi Arabia’s Sovereign Wealth Fund amid declining cash reserves. Promotional presentations had suggested something out of a science fiction novel running inland to Tabuk province from the mouth of the Gulf of Aqaba where it enters the Red Sea. No more than a few hundred yards wide, the linear city had been sold as the future of accessible urban planning, with amenities for residents within close walking distance to accommodation and districts connected by the world’s fastest trains. Prince Mohammed (yes, THAT Prince; accused of ordering the killing of the Washington Post journalist Jamal Khashoggi in Istanbul in 2018), has described the city project as “tackling the challenges facing humanity in urban life today to shine a light on alternative ways to live.” 

John Travolta’s Private Airport. How would you like to look out your backyard window and see a jet plane parked in your driveway? Would you like that view? Well, welcome to John Travolta’s world. Travolta has always been a fan of aviation, which is why it shouldn’t come as a surprise that he has two runways in the backyard of his Florida home. “We designed the house for the jets and to have at our access the world at a moment’s notice, and we succeeded at that,” he recently told Australia’s Today show. The Grease star is a certified private pilot and has owned several aircrafts, including a Qantas Boeing 707 and a Challenger jet. Even the decor inside the home is aviation-themed, with an airport mural in the dining room and airplane models abound.

Geisel Library. Geisel Library is the main library building of the University of California, San Diego. It is named in honor of Audrey and Theodore Seuss Geisel (better known as children's author Dr. Seuss). The building's distinctive architecture, described as occupying "a fascinating nexus between Brutalism and Futurism " has resulted in it being featured in the UC San Diego logo and becoming the most recognizable building on campus. The library was designed by William Pereira and opened in 1970 as the Central Library. It was renovated in 1993 and rededicated as the University Library Building, and renamed Geisel Library in 1995. Geisel Library is located in the center of the UC San Diego campus. It houses over 7 million volumes to support the educational and research objectives of the university. It also contains the Mandeville Special Collections and Archives (which houses the Dr. Seuss Collection), containing original drawings, sketches, proofs, notebooks, manuscript drafts, books, audio and videotapes, photographs, and memorabilia. The approximately 8,500 items in the Seuss Collection document the full range of Dr. Seuss's creative achievements, beginning in 1919 with his high school activities and ending with his death in 1991. Pereira's plan called for the University Center to be moved north and east, along with the proposed library building. This resulted in a revision of the campus long-range development plan: the three "clusters" of four colleges each would be more compact, allowing for an auxiliary library in each cluster. The building was designed around a spheroidal tower, to maximize the stacks area that could be accessed in a given time from the center. This tower is situated atop a main level containing the staff and public areas of the library. The building's arches, in combination with the design of the individual floors, are intended to look like hands holding up a stack of books. William Pereira & Associates prepared a detailed report in 1969. Pereira originally conceived of a mushroom-shaped, steel-framed building, but the projected construction and maintenance costs forced him to switch to a reinforced concrete structure. This change of material presented an opportunity for a more sculptural design, as well as opening up interior spaces that are bisected by steel trusses.

Cash Flow Chronicles Podcast. We are so very excited about our weekly podcast, "Cash Flow Chronicles" hosted by our very own Bill Gross. Bill has been a Realtor, broker and real estate investor since the Ice Age! No one is more experienced in local Southern California real estate than Bill Gross. Each week, Bill interviews real estate professionals sharing their insights and advice. Every Tuesday at 3:00 pm, and anytime thereafter on YouTube, Facebook, and Google. 

Vendors Expo Returns! Our world-famous, super-duper "Vendors Expo" returns on Thursday night, June 13, 2024. The Vendor Expo opens starting at 6:30 pm. We'll have 30+ of the finest vendors featuring real estate products and services you will want to utilize as a successful investor. Stick around after and enjoy our guest speaker. Iman Cultural Center, 3376 Motor Avenue (between National and Palms), Los Angeles, CA 90034. FREE Admission. Metered and free street parking. Please RSVP at www.LARealEstateInvestors.com.

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

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

This Week. The next Fed meeting will take place on Wednesday. No change in rates is expected, and investors will look for officials to elaborate on their plans for future monetary policy. For economic reports, Wednesday also will be the big day with CPI. The Consumer Price Index (CPI) is a widely followed monthly inflation indicator that looks at the price changes for a broad range of goods and services. Import Prices will be released on Friday.

Weekly Changes:

10-Year treasuries:                        Fell    005 bps

Dow Jones Average:                     Rose  100 points

NASDAQ:                                      Rose  400 points

Calendar:

Wednesday (6/12):                         Fed Meeting

Wednesday (6/12):                         Consumer Price Index

Friday (6/14):                                  Import Prices

For further information, comments, and questions:

Lloyd Segal

President

Los Angeles County Real Estate Investors Association, LLC

www.LARealEstateInvestors.com

Lloyd@LARealEstateInvestors.com

310-409-8310