KGCI: Real Estate on Air - The Problem With Real Estate In California Is...California.

Episode Date: May 20, 2024

When I began my real estate career in 1986, California was the golden state. We had the biggest market, the best, it was growing. When I was involved in national companies, we were the envy of every state in the country. Our organizations were healthy and growing. Real estate was a huge, agreeing business and part of it. Part of the community was real estate agents and title and mortgage and related businesses. 40 years later, not only is real estate stalling nationally, but, But California in particular, we have declining sales and just a real stress and pain on top of other bad news. And it seems to be only getting worse here in California. Now, before we get into all that, let's take a look at the news and see what we are. And then we'll be able to understand how California fits in that pitch. I'm Bill Grouch. This is my weekly real estate market update. When we look at an economy, there's always two things you have to look at.

Supply and demand. Supply is the number of houses available. or inventory demand will start with is determined by interest rates. And in mortgage rates today, we're very lucky in that rates have stayed down below 7% again closing at 6.91 for the week, below 7, barely, if barely. But you can see in the bandwidth for the entire year, as long as you stay in this range, demand will be healthy on the buyer's side unless there's some other massive change in the economy. So overall, rates are higher than they should be historically, but are in a place where there's still

is very, very robust buyer demand for housing. On the sales, on the inventory side, on the supply side, is the amount of inventory of homes for sale. And that number continues to be very low, historic lows for non-pandemic periods. You can see the only years below were pandemic periods and last year about the same. We're a little higher than last year by about three, four, five percent more,

but about half of the prior years. So the economy is still in the post-COVID recovery phase, though a little better inventory than last year, but overall, very few homes for sale. And as long as there are a few homes for sale, there's no way that we can have declining home prices and buyers should be able to buy homes with confidence. Now, locally in Los Angeles,

our market as rated by Alto's Research is a 40, which is basically a slight seller's market, been about the same nonstop for the last six months or so. It had been a 42, 43, but it's been the range of 40 consistently over the last six months. So it tells us that we still have a sellers market where sellers determine the pricing. Sellers will determine whether properties get sold or not. And that appears to continue based on the numbers we have going forward for the next period of time. Okay, looking at the news, you know, I always like to point out what I think is misleading news and how bad I think the news is.

One of the leaders is always Zillow, who always provides, I think, stupid advice. misleading information. And one of the most egregious the last few months is this week's, tricked out backyards can help homes sell for $10,000 more. Now, when you read this article, you might think, oh, wow, if I just trick out my backyard, my house will sell for more. The question is, doesn't a tricked out backyard cost more than $10,000? Well, yeah, it gets even worse than that, though,

because if you scroll down and look at the data in their research, I love this. So for example, outdoor TV, you get a price premium of 3.1%. So I live in West LA where the average house goes for, I don't know, a million and a half, two million dollars. Let's say a million dollars, just make it easy and around. They're talking that outdoor TV is going to cause the house to sell by more on a million dollar house by $31,000 for TV that costs $2,000. Well, wouldn't every seller put an outdoor TV in just to make that extra money, right? And the answer obviously is a house with the outdoor TV has other things that together cost $31,000 more. They might have other things in total $50,000 to sell for the $31,000 more.

In fact, a real source of data on this I use as remodeling magazine as part of the housing wire services. And they have the different improvements in what your resell is for that improvement. And the truth is that there's almost nothing at retail that a home seller can buy. They'll add value more than it costs to put in. Otherwise, people would put in outdoor TV. So I don't know. I think Zillow is just shameless with this misinformation. You know, we've heard a lot of news about the real estate lawsuit.

And I think one of the things behind it is like everything now politics. The National Association of Realtors is the largest lobbying group in America. It makes sense. You have over a million small business owners like myself. They own businesses that combine together. and use our power to try to overcome the regulation of big banks and Zillow and Redfin and other companies and other businesses. But the news and the kind of governing powers that be, the big corporations, are down on realtors. And what is because they don't want control on the hands of the people?

They want control. Here's a perfect example from Bloomberg that says out loud, after exposing realtors eliminate the mortgage interest deduction. Now, it's interesting that the, you know, I'm not sure where I stand on the mortgage interest deduction on its own, but it's interesting that Bloomberg is kind of saying out loud the part that's usually a wish is quiet, which is get rid of your enemies, come up with some nonsense lawsuit, and then now with it tied down, we now have the chance to get the policies we want. And that's the part that really bothers you about this. I think it'd be great to have a real discussion on the pros and cons of the mortgage interest deduction,

as well as all the other deductions and all the other tax policies we have. But we would never really get that. We really get these kind of political hits and political wars. And as a result, we get bad policy. So, you know, I have to tell you, I'm really excited. Whenever I see stories of bad real estate outside California, it just, I don't know, is that, I guess that's pathetic when I think about it. I don't mean to wish ill another states, but I guess it's not all bad here.

One of the latest stories I thought that caught my attention was in, of all places, Texas, which is being overrun with squatters as well, and I call them house thieves, as well as illegal immigrants. Here's a case of a woman whose home was taken over by house thieves or squatters. And then these guys took a step further where they just started selling stuff at a garage sale. So they come in their house, and of course the police give the squatters the rights instead of the homeowner. And so while the homeowner spends months and tens of thousands of dollars to get their house back, the squatters simply sell all the goods in the house to live there for free and to have more money for the drug.

So there you go. I mean, I have to say on one hand, I think it's creative. It shows initiative. You don't just steal the house, but now you steal the furniture and everything else goes inside. Here's another story in another state on a problem with, again, house thieves, otherwise in the squatters. this one's in Atlanta where a guy was allowing people because they were struggling. He had a large property, a 10-acre property, and we let them stay for free in order in exchange for helping out keeping the property.

That's how things used to be. Well, of course, what happens is the people who stay there don't appreciate it. They leave trash. He gets cited by the city. And then people try to take the property over, fence off their part of the property. Next thing, this guy now is suing to get his property back. in Atlanta. You can see the piles of trash. There's a whole video on that. So here's a guy who, when I was waiting to do something nice for people,

and his payback is he has now those same people take his property and cause all kinds of expenses. So let's see. What else going on? So in the world of house thieving, our government, you know, one of the rules of the powers in government has always never let a disaster go without taking advantage of it. So here's a case where in San Jose, California, the government is now going to use the problem with squatters rather than stop it and enforce the laws and, of course, the sanctuary city, rather than enforce laws in the books, what they're going to do is now use technology to spy on citizens. And so it sounds great. Oh, wow. Use computers and you'll spot these recreational vehicles that are staying and oftentimes have drugs and other crimes going on inside of them inside of our neighborhoods.

We recently had one in our street. I was able to get rid of it. Sounds great. The problem is these are the same technology and systems that get then turned on citizens like who has certain political signs and who does other things in front of their houses. And so I don't think the solution to house thieving is giving up our political rights. I think the answer probably is enforce the laws against stealing houses. That to me seems like an easier way to get there.

A sad story in New York as we tour the country and the effects of house thieving, aka squatting around the country. A sad story in New York City where a woman was found dead and stuffed into duffel bags. She had a property that was vacant. The family, she was going to check on it. The two squires who live there, and they jump her and kill her a single woman in her 50s, checking out her mother's property, and she ends up being killed over it. So there you go. It's not just about people living in these houses because they can't afford bread and milk and meat.

It's because we have some bad people there. Now, I don't know that I agree necessarily with this particular policy, but in the county of Santa Rosa, Florida, the sheriff just said, hey, if someone breaks into your house, you're more than welcome to shoot. and we prefer you do that actually. So, you know, we don't want to come to that. I do think that scaring house thieves is a good to try it, but at the same time, if you're threatened to shoot people,

they may also threaten to come into your home arm. But so, again, whether this is a joke or serious, it shows you the elevation of this problem in our society. It's getting that bad. Now, on the good news front, in the state of Florida, at least they're taking some action. I know a lot of Californians like to knock Governor DeSantis and our governor, he had been in debates over things, but at least they're taking steps to reduce the rights of house thieves and increase the rights of home owners. And so he passed a whole series of clarifications in the law and basically support for enforcing provision of law.

exist now to help homeowners who are having their homes stolen. And again, I talked about this a little bit last week as well, that, you know, the thing about it is we, you know, overlook stealing $500 or $1,000 now. But when you take somebody's house, it's their livelihood, it's their family memories, it could be their retirement income, it's worth a million dollars. It's kind of so bad that one of my favorite comedy websites, the Babylon B, I don't know if you follow them at all, but I find them hysterical. So they decided to launch a new business called squat PMP so that when you steal somebody's house, it's a convenient way you can run it out

by the night to make more money. So it's a way to help you find the perfect home to take over. It's only funny because it's so prevalent and so true. Okay. So overall, where is the real estate economy? Well, in the non-residential area, which is a place that people have often invested all kinds of problems. In Washington, D.C., Blackstone and Pimco, two, the largest financial companies in the United States, are having a huge write down on a property that they bought for $595 million, and they're selling it for $3.23.23.2.17 million loss. So almost a 50% loss, 40% loss on a prestigious,

high-end property in Washington, D.C. And it tells you that if smart investors, deep pocket investors, investors who get great financing like Pimco and Blackstone are having trouble in the commercial market, you can only imagine what's happening to more standard investors as well. Here in Los Angeles, we have kind of the same problem. Brookfield sold a very prestigious property downtown L.A. 777 towered down. town for 50% below the debt. They owed money.

I think they owed about $500 million on it. And they sold the property for $250. So they're taking a huge loss on this property. And this is Brookfield, who's really one of the leading developers of commercial property. So again, this is completely separate right now, at least, from the residential market. The commercial and particularly the office market are really having tough times. and be careful, you know, investing money there.

And it might spill over. It's always affecting banks, but at this point it has not seemed to affect the residential market. Okay, so what are we doing as far as residential market? Well, our politicians almost always, whatever they do, makes things only worse. Following California lead, California's lead, Oregon and Washington are jumping on the Tiny Homes movement. Tiny Homes is a new movement where we take homes otherwise would be too small for the zoning in an area and make it acceptable. And in this case, they're building 180 square foot homes.

And it's interesting how the, and I'm not opposed to people who want to buy and live in those homes. I'm not opposed to developers who want to develop them for the market. But what we find is there's not really the market for it. It's the government has to push it because they aren't allowing building a normal size lots elsewhere in our cities. And so this is just one of those things where people want regular homes and the government is attempting here in Washington, Oregon and in Los Angeles, attempting to force people to lower their standards. I think to buy a home that probably might not be suitable for families.

I heard anything square for a home. Are you going to have two or three kids? Are you going to have other families come over? You're going to have kids do sleepovers at your house? Probably not. And so I get for people who are in drugs and homeless, it might be a good intermediate. step. But the fact the city wants to brag about how many they're building, I think is just a diversion. Speaking of diversions, when politicians

tell us that we need to get by with less, of course, check and see what they have. Famously in the debates, when he read for President Bernie Sanders said he only had three mansions, one in Washington, one in his home state, and then a mountain home, because didn't everybody have one? What was the words he said? And just quick reminder, here's Michelle Obama, famously said that someone is going to have to give up a bit, a piece of the pie, so others can have more.

And where I'm not sure which of her mansion, she said that from, was her mansion in Washington, D.C., her mansion in Martha's Vineyard where they don't allow aliens, her mansion in Hawaii, which was untouched by the fires, or her newest mansion in Chicago. And so I think when politicians tell us that we're supposed to get by with less, I think the thing that's almost always true is that's for us, not for them. And I would say, just take that with a grain of salt. Why do I say that and why do you say with such confidence? I'm in real estate, but one of the things I know is that generally speaking, people who own houses are happy.

Here's a recent study done by Zucasa, which is an organization owned by my real estate company, ExP Realty, but they do their own research. And they found that home ownership satisfaction is up across all generations. The data survey, 86% of people who own homes are satisfied or very satisfied with being homeowners. And when it asked whether they would recommend others, over 81% said yes. And so we see that generally speaking, people appreciate homeownership. It's only our government officials who are attempting to find ways to talk us out of it. Now, of course, when the government wants to build houses inevitably, two things happen.

One is nobody gets the house that's really needing the house. And the second is the politicians and the developers, we know they're always going to get paid. They're always going to get rich. And it's never going to end up that the people that need the house is going to get it. Here's the most recent example in California where one of the most prominent low-income developers was found using money for luxury goods for his girlfriend, flying around, buying jewelry. and meanwhile three or four of his developments are going into foreclosure, and hundreds of people who are in these houses now have a landlord who's not paying expenses and not available to manage the property properly. And these properties are primarily in San Bernardino County. So again, sometimes it sounds good to have the government-built houses as if it was just as simple as them agreeing to do it, that would be great. One of the propagandists in real estate,

one of the worst source of information, One of the really despicable companies, I think despicable people, is a CEO of Redfin. This is a company that I think has never made a profit, which means that unlike the millions of realtors that seeks to displace, it doesn't pay state taxes or federal taxes. And yet, he's a Wall Street darling. He's worth millions of dollars while he's wiping out people's jobs and also harming our local and national economies. And so this genius, I guess in sense he is a genius, he's made a lot of money destroying a lot of things. He says how to fix America's housing problem. He knows what the answer is.

Well, let's pay attention to see what he says and see if it makes sense. He says that all we need to do is do what progressive states that California have done and deregulate housing. Like set aside zoning requirements, parking requirements, environmental reviews. Oh, isn't it interesting? He doesn't live in California.

He lives in Washington State, I believe. But he's using an example of California that we're doing it right because we're, I guess, removing zoning requirements, park requirements, and environmental laws. And then he says, the people of California are coming back. And builders who haven't set foot in some parts of California are coming back, well, that sounds great. I mean, really, this guy's a multimillionaire. Redfin has a great reputation in all of the periodicals that it advertises it.

That's why they have such good reputation. Let's see if it's true. Here's the actual data from the Federal Reserve Board. Actually, this one's in St. Louis, National Information. California building permits. Last year, the neighborhood of looks like 8,000 on a monthly basis. And you can see the numbers about the same and actually well below where we were in 1990. Well below where we were in the early 2000s.

About the same has been for the last four or five years, which is not enough. Since this time period, our population has increased by 50%. You can see our monthly building permits are down. So on one hand, he's right. The solution is building more houses. Of course, being the, I think, I think Wall Street zombie company that Redfin is, he has to appeal to the politicians and prop them up.

But the reality is the problem in California is we don't have enough building permits, not that we're doing it right and encouraging more people. So on the subjects of tennis rights, we've gone backwards in California. On the subject of building permits, we're going backwards in California. on the subject of helping people afford homes, we promised taxes and not enough income. We're going backwards by raising taxes and giving it to various government programs

that seem to waste their money. So at the end of today's report, you know, I think sometimes my comment across as negative. I really don't mean to do that. And so what I wanted to do today is a new. So I personally am, oops, I lost my spot there. I personally am endorsing the most recent effort to recall our governor, Governor-Govern Newsom.

I don't know if it's going to win or not. We had a recall last year that failed. I think the wrong people ran it. The people running at this time are professionals, and I think are going to build on the last ones. And I think even if it doesn't, it's going to be able to appoint the governor on the issues that people upset with,

which in my mind are crime, which is causing people to leave our state, illegal immigration, which is overwhelming our finances. And in real estate, not supporting people who own houses and property rights. So if you're interested in information, the organization is RescueCafwanaurorgi or reach out to me. I'd be glad to send you links to petitions in your county with all the rules.

But rather than just complain about the market, I'm taking that step. And I'm sure that people won't do business with me as a result of that. I don't care. I really want to do what's right by my state. I'm not leaving here. My family's here. My grandkids are here.

And I want to do something in a positive way. I do think that if nothing else saying the message to Governor Newsom, but even better removing him, would at least give us the opportunity of somebody who's focused on improving our economy, rather than make our economy better for everybody else in the world who comes here, as well as provided for my family and my community. I hope you are too. So we do this every week.

Otherwise, make today your best day ever. Thanks so much.