With the pandemic creating an employment nightmare, the unemployment rate has been a closely watched statistic. Employment is still below pre-pandemic levels, but has rebounded fairly well. That may be giving us false hope, though, since there are other jobs-related statistics to consider.
In a previous article (https://www.carlandarda.com/?p=1370) we looked at the difference between employment rate, measuring what percentage of those in the labor force have jobs, and labor force participation rate, measuring what percentage of people are able to hold jobs, whether they currently do or not. We already saw there that LFP dropped as a result of the pandemic, indirectly reducing the unemployment rate without actually creating jobs.
But there’s another statistic that sheds some light on what the pandemic has done to the jobs market. The long-term unemployment rate specifically measures what percentage of those looking for a job have been searching for 27 weeks or more. Before this recession, the LTU rate has been around 20%. This means that 80% of unemployed people were finding jobs, retiring, or giving up entirely within six months. This rate has been going up rapidly and was at 37% as of November 2020. Not only have more people given up or been forced into retirement, but more of those still searching for jobs aren’t able to find one quickly.
When the pandemic began towards the end of the first quarter in 2020, people were understandably reluctant to start purchasing houses. As a result, mortgage applications saw a sharp decrease. However, they rebounded quickly, surpassing 2019’s numbers even while trending downwards again in December. In the week ending December 23rd, 2020, mortgage applications dropped 5% from the prior week, yet remained 26% higher than the same week in 2019. As a result of low mortgage rates, refinances shot up in 2020, increasing 4% in the aforementioned week to end 124% higher than the prior year.
So we know that more people sought new mortgages in 2020 because mortgage rates are low, but what does the recent downward trend mean for the market in the near future? Well, probably not much. While some attribute the decrease to the housing shortage and rising prices, the fact of the matter is that this has been the case for quite some time. It’s actually more likely just seasonal variation — mortgage applications already have a tendency to decrease near the holiday season. The pandemic could have some impact, but we’ve already seen that the sharp decline earlier in the year was completely mitigated by low rates increasing demand. A more telling statistic is the average loan balance, which set a record high of $376,800. This is because much of the available housing is on the higher end, pointing to a deficit of affordable housing.
With the pandemic forcing people to stay at home, many are looking to improve the smart technology features of their home. A quarter of those surveyed have more interest in smart tech as a result of spending more time at home, up to 37% for those in the 18-34 age range. Even people who already own smart home technology, which encompasses 57% of all people in the US, are looking for more, with 41% having purchased more since the pandemic began.
The most commonly owned smart tech includes smart TVs, speakers, doorbells, robot vacuums, and thermostats. But if people had to choose just one smart feature to add to their home, over a fifth said it would be a high-tech home security system. This was also one of the most desirable features of a new home, along with a smart doorbell with a camera. Looking to the future, however, 35% want smart home features that would enable them to be more green and energy efficient, particularly focused on solar energy. Practicality isn’t the only concern, though, as entertainment and relaxation based smart tech features are also gaining in popularity as it has become more difficult to entertain oneself outside the home.
Foreclosure and eviction moratoriums for FHA-backed loans were previously set to expire December 31st, 2020. The FHA has now given them a two-month extension to February 28th, 2021. Borrowers will also be able to request initial forbearance through this date, potentially allowing them to remain in forbearance through February 2022. The moratorium applies only to legal occupants of single-family residences.
This extension means FHA moratoriums are extended beyond the FHFA moratoriums affecting those with loans backed by Fannie Mae or Freddie Mac. Those were also recently extended, but only through January 31st, 2021. Of course, given how recent that extension was, it’s entirely possible FHFA borrowers will also get another extension in the future if needed.
The Neverland Ranch, near Santa Barbara, California, is a 2700 acre property previously owned by Michael Jackson. The main residence is 12,500 square feet, and there is also a 3,700 square foot pool house as well as a movie theatre and dance studio. Neverland Ranch additionally features a train station, fire house, and barn. After attempting to list the property for $100 million in 2016 and then again for $67 million in 2017, the trust has now sold it for $22 million.
The new owner is billionaire Ron Burkle, co-founder of the investment firm Yucaipa Companies, who had been an associate of Michael Jackson. Also the controlling shareholder of Soho House, he had been searching for a new location for the members-only club. Burkle eventually concluded that Neverland Ranch was too remote for a new Soho House location, but decided to put in an offer anyway, and was successful.
In the neighborhood of Jordan in Hong Kong is a street called Woosung Street, popular for its restaurants. There is also a hockey academy there, as well as a sports foundation founded by Ahmen Khan. But Khan is doing something else to make people want to come to Woosung Street — he went to a nearby refuse collection site, picked up a refrigerator, painted it blue, and set it up just outside the hockey academy. The color isn’t important, though; what’s important is the sign reading “Give what you can give, take what you need to take.”
And that’s exactly what’s happening. The blue refrigerator project has gone viral, and people are visiting just to drop off food so that others can pick it up for free. The refrigerator is there 24 hours per day. Even though it’s a refrigerator, food isn’t the only thing people are picking up and dropping off. You’ll also find masks, cleaning supplies such as towels, and even clothing items such as socks.
Photo by Latrach Med Jamil on Unsplash This photo does not depict the refrigerator described in this article.
2020 hasn’t been quite as bad for the real estate market as expected; Quarters 3 and 4 have actually experienced incredible recovery and even some growth from Q1 since the enormous downturn in Q2. Home sales are up about 800 from Q1, after falling by over 1100 in Q2. Despite the slowdown in construction, total housing starts now are slightly higher than they were in Q1, with the main difference being that more of them are individual homes and fewer are the more affordable multi-family residences. And now, the announcement of the COVID-19 vaccine has brought even more hope for a better 2021. Fannie Mae still expects a slowdown during the first half of 2021, but that’s because people, including builders, are going to need a bit of time to get back into the flow of things. Once prospective buyers have their incomes sorted, sellers see values going up, and halted constructions have been completed, those new homes should fly off the market. While it’s true that this is a lot of things that need to go right, it’ll be an automatic, albeit slow, process once lockdowns end and employment starts back up.
These delicious holiday muffins are quick and easy to prepare, thanks to your trusty blender. Added bonus: they also happen to be low carb!
Yields 12 muffins
4 large eggs
1/2 cup sour cream or Greek yogurt
1 teaspoon vanilla extract
3/4 cup brown sugar
3 cups almond flour
1 tbsp cocoa powder
2 teaspoons baking powder
1/4 teaspoon salt
2 teaspoons ground ginger
1 teaspoon ground cinnamon
1/4 teaspoon ground cloves
Preheat oven to 325˚ F.
Line a muffin pan with liners.
In large blender jar, combine eggs, sour cream and vanilla extract. Blend approximately 30 seconds.
Add sugar, almond flour, cocoa powder, baking powder, salt and spices. Blend until well combined. If batter is too thick, thin out by adding 1/4 cup water.
Pour the mixture evenly among the prepared muffin cups. Bake 25–30 minutes until golden brown and firm to the touch.
Chances are you’re familiar with the concept of inspecting a home before sale. Seller’s agents are required to list observable defects, but sometimes problems aren’t as easily noticed, which is why seller’s agents will frequently recommend that a qualified home inspector take a look. A good home inspector will always look for defects that affect the property’s value, desirability, habitability, and safety, and they are required to provide the seller’s agent with a home inspection report (HIR). But it may surprise you to know that who can be considered a home inspector is actually rather broad.
A home inspector is really anyone whose business is conducting home inspections and preparing an HIR. The State of California has no home inspection licensing. That doesn’t mean they are necessarily unlicensed, however, as many home inspectors have general contracting licenses or are pest control operators, architects, or engineers. You will occasionally find home inspectors without a license of any kind, which is why seller’s agents always want to be cautious about which home inspector they choose. There are some rules that even unlicensed home inspectors must follow, such as that the inspection be non-invasive and non-damaging to the structure, and that they provide an HIR to the seller’s agent.
Quite a year! Soon we’ll have to do a wrap-up on 2020. But, for today it’s going to be November 2020 versus last year, (November 2019) and versus last month (September 2020).
Let’s start with the big numbers. Over all, total sales in the Los Angeles South Bay for November came in at just shy of $880M, 9% off from September. One could easily consider that drop a seasonal variation as we move into the cold months.
Compared to November 2019, total sales dollars for the combined areas of the South Bay were up 25%. Much of that is making up for sales that didn’t happen during the confusion of the first shutdown this year. Now that things are more stable, we’re seeing a lot more come on the market. Nearly everything coming on the market is selling, and at good prices.
Harbor
The star of the month is the Harbor area with a 42% year over year improvement in sales dollars. Units sold were up 26% Y-Y and median sales price was up 13%. This is a big boost for the San Pedro-Carson-Long Beach area. The increased action and the increased price, outpaced the rest of the South Bay by huge margins.
Generally speaking, the Harbor cities have entry level homes. Those are being bid up dramatically by buyers who newly qualify for purchase loans because mortgage interest rates are now down in the 2-3% range. I suspect there are more than a couple of investors are mixed in there, too.
Palos Verdes
The Palos Verdes peninsula presents an anomaly this month. November compared to October universally shows a seasonal decline in the 1-10% range, but PV dropped 27% in dollar volume. Looking deeper we see the M-M median sales price has dropped by 13%, while neighboring areas have remained within 1-2% of last month’s median price. Monthly sales volume also plummeted by 15% versus an average of 4% down for other areas.
Year over year values are all in line with the rest of the South Bay, by PV seems to be taking a beating from the pandemic.
Beaches
The Beach, by comparison to PV and the Harbor, had a boring November. Volume was down from October by 9% and median price off by 2%. Total dollar sales fell from October by 9%. The numbers are within seasonal expectations, but any time Beach prices fall off more than neighboring areas, it’s a cause of concern. The Beach tends to be a precursor to future changes in the South Bay.
Looking at 2020 over 2019, the number of sales was up 1% and median price was up 3%, leaving a tidy 11% increase in Y-Y total dollars sold. Despite the Covid-19 pandemic, those rock-bottom interest rates are making sales happen faster than last year.
Inland
Inland cities sales volume for November dropped off from last month by 3%. Median sales price declined a mere 1%, while total sales dollars were off by 3%. These are minor drops in light of seasonal impact, showing a strong market even as we go into the winter months.
Looking back to last year, the Torrance-Gardena-Lomita area showed more than respectable growth. Sales volume was up 12% over 2019. Median price was up 10%. Those increases created a total sales dollar increase of 25% above last year.
Not bad for being in a pandemic. Existence of a vaccine should relieve the fear keeping many people away from buying and selling during the coming months. The Federal Reserve Bank has indicated that interest rates will stay down for another 12-24 months. Everything points to a growing confidence over the winter and a booming market in the spring.
The High and the Low
The Los Angeles South Bay is a very diverse set of communities. To show you the breadth of that diversity, let’s take a quick look at the highest priced sale for November, versus the lowest priced sale.
On The Strand in Manhattan Beach a 6025 sq ft house on a double width lot of 6927sf sold for $17,750,000. The listing agent bills this property as a perfect opportunity to build a world class home of over 11,500sf of living space. The sold price per square foot of residence is $2,946.
On Ackerfield Ave in Long Beach a one bedroom one bathroom condo of 641sf sold for $205,000. Per the listing agent the home boasts a community pool and laundry facility, with one carport plus storage. The sold price represents a rate of $319 per square foot.
Earlier this year, in April, NASA announced development of Ventilator Intervention Technology Accessible Locally (VITAL), a ventilator designed specifically with COVID-19 in mind. Existing ventilators have more general use cases, but are more expensive and more difficult to build. Currently, 28 manufacturers are licensed to build VITAL, with models variably either pneumatic or using compressed air. In August, one such manufacturer, Russer, has gained approval for its pneumatic model from Anvisa, which is Brazil’s equivalent of the FDA. Nonprofit research organization CIMATEC in Brazil helped develop the Brazilian model. Leone Andrade, the Director of CIMATEC, says that VITAL can also help boost Brazilian industry in addition to helping combat the pandemic.
It’s no secret that California has a shortage of affordable housing, and the diminishing construction rates definitely aren’t helping. Fortunately, there’s a rising statistic that isn’t captured in construction rates — conversions. Various types of commercial structures have been being converted into apartments over the past three decades. In the 90s, the most common type was hotels, followed by factories in the 2000s then offices in the 2010s. Now it seems we’re likely to circle back to hotels, which are experiencing extraordinarily high vacancy rates as travel has decreased during the lockdowns and recession. Hotels are also the best target for conversion to affordable housing because they generally produce lower tier apartments. We shouldn’t discount office conversions, either. As businesses are transitioning to partial or full work-from-home models, less office space is required and businesses will be looking for mixed-use structures.
With the large homeless population and significant number of vacant properties, it’s no surprise that homeless people often squat there. One company has turned that fact into a business. Weekend Warriors, run by Diane Montano, is a security company in Los Angeles and surrounding areas that operates by hiring homeless people to guard vacant homes, rather than simply squatting there. This gives jobs and temporary housing to homeless people while also protecting the property from vandalism or allowing the owner to perform maintenance or remodels undisturbed by squatters.
While it may sound like Weekend Warriors is in favor of helping the homeless, their employees tend to see it as simply a way to survive, not a blessing. They may be grateful for the opportunity, but at its heart the position is designed to help homeowners and corporations avoid squatters. The company works closely with Wedgewood, a real estate company specializing in renovating and flipping homes, particularly in majority Black and Latino neighborhoods, accelerating gentrification by frequently selling the newly remodeled property to more well-off White buyers. Employees are asked not to leave the building or talk to people while working, despite the fact that shifts are between twelve and twenty-four hours, seven days a week at far less than minimum wage. Of course, the employees, some of them ex-convicts and many of whom sympathize with other squatters, don’t tend to abide by these rules.
Here in California, the foreclosure moratorium is set to end in February. The federal government has now caught up with California, with the FHFA extending the federal moratorium through January 31, 2021. It was previously set to expire at the end of December. The FHFA will be keeping tabs on what’s happening and continue to provide extensions as needed.
More than 28 million homeowners in the US have an Enterprise-backed mortgage, so the hope is that this extension helps a lot of people. FHFA Director Mark Calabria wanted to make sure borrowers had peace of mind during the pandemic. Fannie Mae and Freddie Mac are expected to incur between $1.1 billion and $1.7 billion in additional expenses between now and January 31, in addition to the approximately $6 billion they’ve already incurred during the moratorium.
SB 1079, also known as “Homes for Homeowners, Not Corporations” has now been signed into law, and becomes effective January 1, 2021. The law seeks to balance out the advantages that corporations and Wall Street have in bulk purchasing foreclosed homes. We saw the devastating effects of this type of corporate greed during the Great Recession, and California lawmakers don’t want a repeat of that.
To this end, the new law does a couple things. Firstly, bulk purchasing is much more difficult, as bundle auctions will no longer be allowed except as permitted by security instruments. Second, eligible bidders and tenant buyers will have 45 days after the trustee sale to beat out the highest bid. Importantly, not listed among eligible bidders are for-profit corporations. Also of note, an eligible tenant buyer need only match, not exceed, the highest bid, and if they do so before the trustee sale ends, the sale is final. Though it doesn’t affect chances of homeownership, SB 1079 also increases fines for owners failing to maintain vacant properties.
Many businesses have been struggling during the pandemic, but the cannabis industry is not one of them. Cannabis businesses were deemed essential and therefore have been working throughout the stay-at-home orders. And their business has been booming. One need only look at California’s state tax revenues to see it, as those from cannabis businesses have doubled in Q3 2020 compared to Q3 2019, jumping from $171 million to $371 million. The president of the Long Beach Cannabis Association, Adam Hijazi, has witnessed multiple first-time buyers every single day.
Of course, it’s entirely possible that this growth is despite the pandemic and not because of it. It’s only been three years since recreational cannabis was legalized. There’s still plenty of room for the industry to grow, and more businesses are opening each year. The legal cannabis business is so fresh that the illicit market still accounts for a large portion of cannabis sales. The Long Beach Economic Development and Finance Committee is even considering making starting a legal cannabis business easier to encourage this highly profitable new market.
The European Space Agency (ESA) has partnered with British metallurgy company Metalysis on a project that could potentially assist in enabling life on our Moon. Much of the oxygen present on the Moon is trapped inside of rock dust, primarily regolith. Metalysis has already been using a process to extract minerals from Earth rocks in their metal production, which happens to have oxygen as a byproduct. They believe a similar process can be used on lunar regolith to extract the oxygen, this time with the minerals as byproduct. The minerals can still be useful, too, as they can be used by 3D printers to build construction material.
In order to make this process ready for use on the Moon, it’s going to need to be less energy-intensive, since there isn’t as much energy available on the Moon as there is on Earth. Metalysis is working in conjunction with the ESA to rework their process with the express purpose of oxygen extraction from lunar regolith in mind. They believe that a more streamlined process with one specific purpose can be more energy efficient. There are also plans to reduce the size of the extraction chamber, which is currently about the size of a washing machine, so that it can be more easily transported to the Moon.
Currently, approximately 4 million homeowners in the US are in forbearance, which means that the lender has agreed to delay foreclosure on a property. Many others are delinquent in their payments and will be suffering the consequences when the foreclosure moratorium ends in February 2021. It may be too late for some of these people, but if you act quickly enough, you may be able to avoid the most serious of complications by utilizing a strategic default, also known as voluntary foreclosure or, more colloquially, the “jingle mail” strategy.
In a strategic default, the homeowner voluntarily initiates a foreclosure on their home in exchange for avoiding responsibility for some of the debt owed. When this happens, the homeowner is not responsible for what is called nonrecourse debt, which includes a mortgage funding the purchase or construction of an owner-occupied residence with no more than four units, as well as credit sales in which debt is secured solely by the sale of real estate. Even if the debt is recourse debt, the mortgage holder may or may not be able to pursue the homeowner for the loss. Be aware, however, that there are some drawbacks to a strategic default. It comes with a significant drop to one’s credit score, which can make securing new loans and finding a new home more difficult.
GDP, or Gross Domestic Product, is defined as the total final value of all goods and services produced, and is one of the most frequently used indicators of economic health. But how much does it actually tell you, and how can that information be used? For the most part, GDP is simply a broad overview of a state’s economic health, and tells little about how the residents of that state are doing. There are, however, strong correlations that enable the direction of change in GDP to be a good indicator of the direction of change in fiscal wellbeing of the people, even if the exact value of GDP is largely irrelevant for that purpose.
This is because the interplay of GDP, employment, and home sales volume tends to form a continuous economic cycle. If more new homes are sold, this directly increases GDP, which is generally followed by an increase in employment with a delay of usually about a year. In turn, increased employment means more people are able to afford to buy homes, thereby increasing home sales volume and continuing the cycle. Any one factor increasing can trigger the cycle to begin, and it also works in the negative, so a decrease in any triggers a decrease in the next. Of course, as with any economic cycle, certain events can cause it to derail — for example, unusually high sales prices can result in inflated GDP numbers without increased sales volume. It is also important to note that GDP includes only new products, which means that reselling homes doesn’t increase GDP, and with construction being as slow as it is, a great many home sales are resales.
Despite their limitations, GDP growth and decline numbers are still useful for big picture assessments. But if you really want a good idea of the local economy in a region, the most important statistic to look at is employment. Other statistics that directly affect peoples’ lives are also valuable, such as home sales volume as well as home prices.
As of September, California had lost about 1.5 million jobs in the prior 12 months, resulting in many people falling behind in house payments. This includes both renters and homeowners with a mortgage, who are both reporting various degrees of certainty about their ability to pay. Of those renters who are still paying rent despite the moratorium on evictions, about 48% don’t have high confidence in their ability to pay next month. Less than 70% of homeowners think they can pay their mortgage.
All this uncertainty is leading to a very static market. Buyers simply don’t have the income to purchase a home. Sellers are raising prices to recoup some of their losses, or just not listing right now. A stimulus package isn’t going to be enough to solve this problem — the people need more confidence before they will want to buy or sell. This means we need job recovery. While the unemployment rate may make it appear as though the situation isn’t dire, that’s largely because of the manner in which unemployment is calculated. Those who aren’t actively looking — as many are not currently during the pandemic — aren’t included in unemployment numbers, as they have dropped out of the labor force (See this article for more information about the labor force participation rate and its connection to unemployment: https://www.beachchatter.com/2020/11/23/understanding-labor-force-participation/). We’re not likely to see a recovery until 2023 at the earliest at the current rate.
