KGCI: Real Estate on Air - We're In An Affordability Crisis

Episode Date: September 24, 2024

It's always much easier to talk about a problem than it is to do the hard and often required consistent daily work to solve a problem, such as the case with housing's affordability crisis. As long as they've been in this business, there's been talk about affordability issues. But nothing is being done about. In fact, the opposite because it's very easy to undermine housing affordability. And I'm sure what I mean by that. This is my weekly podcast, real estate market update. I'm Bill Gross at Bill Gross Probate.

Before we get in the news of the week, let's talk about the statistics to see where we are in the marketplace right now. And that way we can talk about going forward. In any economy, you have two main factors, supply demand. Now, supply is the amount of inventory available by sellers. That's one way to measure that, the best way to measure that. And demand is most strongly affected by interest rates. So let's take a look at starting on the demand side with interest rates. We'll look at the mortgage rates just ticked above 7%.

But you can see it's been in the six to seven range nonstop for the last six months or so. Definitely below from the summer rates and fall rates of last year in the eights and the high sevens, above the rates last year in the low sixes. But in the range of where we've been. And at this range, we have more than enough, you know, demand. We have more enough buyers interested in buying properties to keep the demand for properties solid for the next period of time. that way prices can't ever drop. The other factor is on the supply side.

If you take a look at inventory, you'll see that we still are at all-time record lows for non-pandemic years. Now, the pandemic years had less inventory. Last year is slightly less. So maybe that might be the one pandemic record year. The prior years before pandemic were still well below almost half the inventory of those years. And so you would say we still are in some sort of imbalance or post-covales. period where many economies are resolving out of the COVID period, it seems like housing really hasn't done that.

But here's the key thing. As long as so few homes are available for sale, you can have a rush of sales that will cause prices to drop. Therefore, there cannot be a significant national drop in housing prices as long as these inventory numbers stay low, which they appear like they're going to do for the foreseeable future. Okay. So real estate is a very local business, though.

And so what's it like in our area? We're in Los Angeles. We can see that our market, we use Altautist research. They do a great summary. And they say the L.A. market is about a 40, which is a slight seller's market. We've been in that range consistently the last six months. So we're in a market where it's an advantage of sellers, almost everything that's priced rate, sells right away, gets multiple offers.

I literally get inquiries on properties that are in escrow almost every single time. And so you can see the market for now is still. I would say by all standards, a seller's market slightly, and the prices still have, you should have the confidence that they're going to stick going forward and not cause you a problem that you should risk overpaying. Okay, let's take a look at the news. And one of the things I like to do is point out what I think is how the news industry really misleads buyers.

And here's a good example. Morningstar, which used to be a professional source of good financial information, with their misleading and nonsensical news for reasons not to buy into the real estate hype. And then the set total is great. Buying bricks and mortar is not a guaranteed path to wealth. Whoever said it was. So this is the case where the article sets up what's called a straw man. They pretend that somebody said buying bricks and mortar is a guarantee to wealth,

as if anybody would be stupid enough to say that or anybody would be dumb enough to buy it. And then they argue why that's not the case. And then if you read the reasons, Amy are not a CFA, whatever the heck that is, gives, let's take a look at that. One, it's a lot of work. How about that? So you're not guaranteed to be successful unless you put in a lot of work. And that's news to Amy at Morningstar. I just find that pathetic.

No, of course, any success requires a lot of work. Two, real estate is illiquid and has high transaction costs. Now, it's true that real estate has high transaction costs. And so most commonly, you can't make money flipping a property immediately. The margins are very difficult and it's harder. But that said, I know people who flip property immediately and cover those transactions and make a profit. It's hard work, C number one above.

But it can be done. And as far as being illiquid, there are people wholesale properties. They never have any money in the deal at all the whole time. So that's not quite true. It's true in many areas. You also can buy real estate in the form of investment trust like Reef, or stock. So again, it doesn't have to be illiquid. Three, buying real estate near your home can leave you overexposed to negative market conditions.

Now, that's true. And frankly, I don't buy investor property in L.A. For that reason, I have a business in L.A. My income is in L.A. I have a house here in L.A. And my investment property, I want to be out of state. That's how I diversify. But the same token, though, if you're investing in the local market and you know it, you bring your advantage to the market. I'm literally an escrow to property. that I know very well that I was able to jump on because I knew the market area just based on the address. I knew the block. I knew the street.

And then four is reason for it, taxes can be complicated. Don't buy the real estate hype because taxes are complicated. Yeah, you can get a tax advisor. I have a great tax advisor. Robert Hall, shout out, Robert Hall Associates in Pasadena, great specialist in real estate investment taxes. My son-law, Michael Malk, is a great tax preparer. CPA, we'd be glad to talk to you about tax problems if they're complicated. Complicated taxes doesn't mean you shouldn't make money.

Complicated taxes means that you should get proper help, have a team, plan ahead. So again, this is just, I think, a bad article, and this is implomatic, I think, of the real estate industry really undermining consumers overall. Speaking of misleading articles, Fortune Magazine steps in this week on the topic of the post-lawsuit of the commission. lawsuit. And their headline is, the housing market is set to get even better for sellers and even worse for buyers, says real estate expert with billions of dollars of transactions. Now, this is behind the payroll. You should pay money for this nonsense. Let me help you because

I found this article outside the paywall and had a chance to summarize before you. A couple of things I would tell you. One, the expert, they'll put his name in there because if you looked into him, you wouldn't read the article. He might be a great real estate investor in commercial real estate has very little experience with buyers and sellers of residential property, which is not what they're showing you as the story here. Now, I will say to you, for those you who know me at all, that any time I have a chance to make fun of a UCLA of a professor I do, and this is a professor at, I lost his spot, where was that?

I lost his bio. But anyhow, the article, the professor that they're quoting is a commercial expert in commercial property has very, it doesn't have any particular, I don't think, expertise or so he doesn't have a portfolio of class that he teaches in residential real estate. And the fact he's talking about is the commissions are going to change in residential market. Now, his contention is it's going to help sellers and hurt buyers because in his mind,

buyers will have to, will be able to offer a lower commission and then sellers will then save that difference. But it's not going to. work that way because the harsh part for buyers finding the house. The one thing the buyers are still going to do is work with buyers who can help them find property. So I think that's a, that's wishful thinking by people of very pro-government power, but I don't think in the long run that's going to be the case for us in the long run. Speaking of not the case misleading information, Zillow once again chimes in with what I think is their misleading statement. And this is

their mission to support fair housing. So Zillow, So as a company, it doesn't make money, so therefore doesn't pay typically federal and state income taxes. So it just helps destroy companies like mine. And then along the way, you wonder why the American economy is not growing. And here's Zillow, not content to disrupt their essential sales market. Now they're making a big move into the rental market. Part of that is because big corporations would love everybody to be renters, easier to control us. Just put everybody in these high rises near metro stations and you don't have to give people a chance to bar

cars, you'll have to talk about global warming. You just lock them all into their high rises. And so Zillow, their mission for housing, just interesting to note, there's about three quarters of it has to do with renting. They're going to allow rental reporting, cost of rent summaries, rooms for rent. They're basically going to let people house hack their rooms, whether or not the landlord allows them or the city allows them to. And then a couple other things, local legal protections.

So Zillow is going to pile on to landlord. by giving more power to tenants rather than to the owners of the property. So again, it just shows their focus. Three quarters of their fair housing focus is on renters. And you can see increasingly that Zillow is turning away from being a company to help Americans achieve the American dream. And really it's becoming more and more about Zillow achieving the Zillow dream, which seems to me to be about really being one of the big corporations that run our economy.

Okay, speaking about evil big corporations like Zillow, here's another one, Chase this week, kind of is advertising. They're excited to share that they're going to let advertisers target their bank customers based on spending history. So it's not enough that they have our money and they charge us fees to use their services and use their credit card and such. But now what they're going to do is they're going to, in a creepy spy way, take our spending and then sell that information to competitors. because none of us have enough spam email, none of us have enough spam text messages their life. And so Chase is going to help sell your data to more people. And I'm sure Chase is the only creepy, large bank.

They all want to do it. They all want to. And again, this speaks to who is Chase's customer? Not you, the depositor, not you, the credit card user. Their real customer is the people that selling your advertising information to. And they're just using us because we're like the post office now. Chase has destroyed so many small, medium-sized banks that customers have to come to Chase for lack of competition and other big banks. And now they can sell our data and control our lives more and I think overall be a bigger force for evil in the world.

So thank you, Chase, for your support. And yeah, there's that. Okay. Next up, speaking of evil corporations that are caught doing things that are nefarious, open door. I'd be a little careful because they are a customer or company we work with at EXP Realty. But part of why they are is because they've lost a lot of money. In California alone, they're being fined $62 million for misleading what they're selling houses for. They told customers that they're going to save a lot of money by going through their open door system.

And the reality is that they really didn't. Here's an interesting factoid. If you take the $62 million settlement in California by the $2,500 homeowner, you get an average homeowner harm damage of $24,000. But the average homeowner only gets $1,500, whereas the rest go, the attorneys and the government. So here you have a case where the government kind of allows open door to operate and build this business. And then, of course, they don't make any money so they don't pay taxes. They basically mislead people in California alone to $62 million.

But it's definitely going back to the homeowners is $62 million. The homeowners end up with about $3 or $4 million, and the rest goes to attorneys and the government. So if you wonder why big corporations regularly cheat our citizens, it's because they get away with it. And that's just kind of how it goes. Okay. Continuing on the topic of the city destroying your property

or your homeowner, here in Los Angeles, it got national news, residents call for action over the Los Angeles, what they were calling the trash house. And so the trash house was a property that had so much trash in front of it that here's a picture of it, that it was unhealthful. Imagine living next door to that. This is an area of houses that they sell for one-half to two million dollars. And so normally in a normal functioning city, the health department And well before this point, would have sided the owner and then come in and remove the trash and charge the owner and put a lien on the property. In Los Angeles, we don't really enforce laws.

We don't enforce immigration laws. We don't enforce criminal laws. We certainly don't enforce squatter laws, house thieving laws, and in this case, trash laws. So we allow this to get so crazy that it literally becomes national news. Now, I guess there's a good ending, but I'm going to suggest it's not a good ending. And that at the end of the day, this particular property got so much attention that our mayor, Mayor Bass, Karen Bass, recently elected, showed up and had a press. I'm trying to look for the picture of her there because I think it's funny.

Showed up at the property and was able to get the city to do its job. We all pay taxes for the city to do its job. And so it's great that we got it done. I think the thing that is most troubling is it took the main. to show up. Like she's proud of herself. Hey, I'm the, I'm the boss girl. I got the house cleaned up. I think that's a bad sign because I would say if it takes the mayor showing up to clean up a house this extreme, how many houses a year can she help us clean up? That means we can only deal with 700 houses a year in a city of millions of people. And so that's where I think that while it sounds

great to have a mayor press conference. I'm still looking for the picture of her in front. There it is. So proud of herself, Mayor Karen Bass, there is she in the bottom. She's there with the trash behind her inaction, saving you as a citizen. No, really, I think it's a sign to the dysfunction of our city that got that bad that the only way they could remove the trash was the mayor coming out and personally getting involved. I don't think that's a good sign. continuing on the destruction of owners' rights of real estate in California here's a recent chart I came across

that shows the squatters rights I would call house thieves rights by state and of course the state with the most lenient laws is California. Tie with Montana, interesting enough. And I think Arkansas okay, so good. We're not alone as the worst.

We're tied for the worst. We're number 47 in terms of the most lenient helping people steal other people's homes. That's one of our, go California, we're number three or tied for number three, I guess is a way to look at that. So, again, these are facts that we as a state, I think, for whatever reason, have made the decisions to take away homeowners' rights and give them to tenants. One of the things I wanted to kind of show is, again, the headline here today was about

a housing affordability, not being about a housing affordability. It's really the affordability of everything. You know, I went to get a hair cut last week at supercuts. Now I do that because it's convenient. My hair is not that complicated. Used to be, it's not more, it's convenient. Used to be 18 bucks at supercuts. Now, the basic cuts is $32.

Now, I'm not complaining it's good value compared to other places, but everything is got up 50%. Every hamburger, every pack of breakfast. everything we buy it is crazy I went and bought a bar at a gas station the day you know a snack bar I couldn't believe what the price was for it it's just amazing how prices got up and so here's a chart that kind of shows what's going on it shows the medium sales prices going up of houses and then it shows the well I guess we lost respond here the point of the graph was well it talks about the affordability that the average house $84,000 in America, I'm sorry, the income needed

to buy the average house in America is $113,000 and the average income is $84,000. And so it just shows the income is less than an acquired by about 33%. And this has continued nonstop for the last four years. And so for those of us who think about everything getting more expensive, it's not just housing. And that's the thing that I want to make sure we pay attention to. It's not just houses that's more expensive. It's everything. Now, the news will make it sound like it's just housing.

So here's another example. It's cheaper to rent than buy a starter home in top 50 U.S. metros. And as I've said many times, that's a design. This is the policy that large cities, progressive, which means liberal, liberal, leftist cities and states want, is everybody to be a renter, easier to control renters, the government's more powerful with renters that can dictate things. It's not cheaper to rent than is to buy in the top 50 U.S. metro areas. So again, not good.

The American dream is predicated of people being able to own property. And I think when you own a property, you feel more empowered. Why are we not able to buy property? Well, one reason why is the state has used its power, the power of badges and guns, to prevent us from building houses. Here's another city. I've talked about the past Beverly Hills, now Hinton Beach. You cannot build any new housing in Hinton Beach

because of the state policy. The state passed a law that every city has to have a certain have low-income housing that nobody wants. And therefore, each city now is prevented from building any housing until it complies with Sacramento's rules. Not exactly what I would think of when I buy a house and buy land, but in essence, this is just another way that the government has stolen our property values. Now, the city and state would have you believe the solution to all this is more state and city-controlled housing programs.

But the reality is these programs are a mess. Most recently, last week, a federal judge ordered an audit of the LA programs tracking. the housing. I reported previously that one of the largest participants in the city program is in foreclosure. He has hundreds of units now that are in foreclosure. And so while the city is reporting that they're improving on the homeless front, most people like me drive around to see more of it. And so what happens is when a federal government, a federal judge starts the audit, they're going to find graft, misspending, clearly bad results, no results in the case of improving housing.

And what will happen eventually is the federal government will step in and manage the program, just like the federal government has done in certain police situations where the police weren't getting the results so that the government wanted. And the federal government came in and ran it and kind of ran it in the ground. Here's a case where the federal government's going to start running these housing programs. And so that's stay tuned because that could be a real mess. And the example I used last week was Fannie Mae, where the federal government was so bankrupt that the government had to take over as a conservatorship,

Fannie Mae and Freddie Mac, and here we are 15 years later and no end in sight of the federal government's takeover of that portion of the housing market. So the march towards more government control of our housing market continues. Now, one of the things I wanted to look at this week also was an indicator of affordability.

And one, I thought, interesting point in the past I showed you how the sales of cars have been flat for the last eight years, even though our population has gone up 10, 15%, depending on how you count the illegal immigration, the number of cars sold is flat. Like the number of houses sold is flat. Well, there's another area that the same thing is true, which is RV sales. RV cells are basically flat. And while they're hoping for improvement in the next few months, the reality is if you look at the number of houses of RVs sold, you'll see that for the last, other than the COVID period, if you take this part out, right?

Here we are. We're about where we've been to, this is 1998. Right. And so if you take these couple years out, we were up and then headed back down pre-COVID and then pop back up again. But this is, this is a properly aligned graph. Our population, this type has gone up to 20%. We should be up higher 20% just to stay even.

And so the fact that people are buying less houses, less cars, Let me back up. The same number of houses is less. The same number of cars is less. The same number of RVs is less because there's more people buying the same number. By definition, that's the sign of people not being able to afford things that in a normal economy would people be able to afford. So overall, it's not an affordability of housing crisis. It's an affordability of everything crisis. I know it's on subway. They sell, they used to have a foot long for five bucks. Now it's six inches for. for six bucks. I don't get a subway. I used to when I had a kosher one nearby, but that's over double price. Half the sandwich for more money,

that's where economy is today. So it's not a housing affordability. And it's easy for the government to blame, make a housing affordability because then they can blame all the bad guys associated to housing, like realtors and companies and such. The problem is the government has taken her money and misspent it,

create inflation, and everything has gone up in value while our incomes of state about the same. Now, again, And if you know, last week I made an announcement, because I feel like every week I am merely presenting bad news. And so what can you do? I think it should be called to action. And my call to action is, let's hold accountable the man who's been in charge of our government the longest in California, at least.

The mayor, two-term mayor, I'm sorry, two-term governor of California, before that lieutenant governor, before that the mayor of our largest and firmly nicest city, San Francisco, Gavin Newsom. And you may or may not know that the recall. was again, a petition was approved to start collecting ballots. And so if you're interested, please reach out to me. I'd be more than glad to share with you the petition. Very detailed form. It's a rescuecalfordia.org as an organization. But I can send your link.

You can download the form. You have to have one petition per county because if not, though, invalidate the votes. And it's amazing how they're very particular on a petition to throw out votes. but when they get piles and piles of balance on election day, they don't check anything. So this is an indication of how hard it's going to be, but I do think as citizens, we need to at least voice our frustration.

If you're frustrated, if you're happy, let me know. In the comments, Bill, you're off base. Things are great in California. You're exaggerating. Or if you agree with me, put a comment there or thumbs up or whatever you want to do. So at the end of the day, there's an option. Otherwise, work hard, save money,

and pursue the American Dream. Don't give up. Don't let anybody tell you can't achieve. achieve it. As always, I'm Bill Grouse and make today your best day ever. Thanks so much.