Economic Update (Monday, February 8, 2021)

[Lloyd Segal]

Economic Update (Monday, February 8, 2021) Have you ever wondered who originally handed out area codes? For example, why did Vermont get 802 and Southern California 213? Listen closely because the answer will assure you of winning your family’s next virtual trivia contest. The answer is in the word “dial.” Did you know that in the dark ages, we used to dial numbers on rotary telephones to make a call? I know, I know, that’s really hard to believe, but its true! “cht-cht-cht” was the sound of the rotary dial spinning back into place after you dialed each number. So, the lower the digits in a phone number, the less time it took for the dial to spin back before you could dial the next number. Back in 1947 (the area code’s launch year), AT&T decided arbitrarily that big cities with large populations (i.e. Manhattan, Los Angeles, Chicago, Philadelphia) should get low-digit area codes that were faster to dial, 212, 213, 312, 215. Less populated states were assigned higher numbers. That’s why in Vermont and Hawaii, the locals love wearing hoodies and caps printed with the states’ only area codes, 802 and 808, like they were graduates of some area-code college. So enjoy our lower area codes, wash our hands, put on our facemasks, social distance, and let's shake the tree… Maria Rita Valdez Villa. In honor of Black History Month, let’s spotlight Maria Rita Valdez Villa Quintero, the African-Mexican “Foremother of Beverly Hills.” In the 1838, Maria Rita, the formidable granddaughter of Luis and Maria Quintero and great-granddaughter of an enslaved African, was granted the 4,539-acre “El Rancho Rodeo de las Aguas” (which we now know as Beverly Hills). From her adobe at what is now Alpine Drive and Sunset Boulevard, Maria Rita ran cattle ranching, farming, and gardening operations. She was also well known for holding a yearly celebratory rodeo under a famous eucalyptus tree at what is now Pico and Robertson boulevards. Rancho Rodeo de las Aguas was named for the streams that emptied into the area out of the canyons of the Santa Monica Mountains above it. The two main north-south arteries running through the canyons were the Cañada de las Aguas Frias (Glen of the Cold Waters, now Coldwater Canyon) and Cañada de los Encinos (Glen of the Green Oaks, now Benedict Canyon). In 1852, three Native Californian outlaws attacked the rancho, culminating in a shootout amongst a grove of walnut trees at what is now Benedict Canyon and Chevy Chase drives. Done with the dangers of rancho living, in 1854 Maria Rita sold the rancho to investors Henry Hancock and Benjamin D. Wilson for a whopping $4,000. The rest, as we say, is history…

Employment Report (January). According to the Department of Labor, the U.S. gained a meager 49,000 jobs in January. As you can see, our economy is still struggling to recover after a record coronavirus surge induced more layoffs at the end of last year. The weak employment report adds fuel to Democratic passage of another large dose of federal aid to help our economy. The Biden administration is seeking almost $2 trillion from Congress, including $1,400 payments for most families. The U.S. lost jobs in December for the first time since the onset of the pandemic after coronavirus cases soared again. Many states re-imposed business restrictions to combat the pandemic and restaurants and hotels had to lay off workers (some for the second or third time). But here’s the good news; with Covid-19 cases declining again in February, restrictions are being lifted and more people are slowly returning to work or finding new jobs. Yet the winter coronavirus case spike sapped our economy of momentum and left millions of people on the unemployment rolls. Some 10 million jobs that vanished in the early stages of the pandemic still haven’t returned. The U.S. unemployment rate, meanwhile, fell to 6.3% in January from 6.7% and hit a new pandemic low. But the decline stemmed largely from people abandoning job searches and thereby dropping out of the labor force (not because more people were hired). Economists say the true level of joblessness is several points higher. A big reason is that several million people who dropped out of the labor force (because they couldn’t find work) aren’t counted in the main unemployment rate. The small increase in jobs in January was exaggerated by a reported rise in employment at K-12 schools and public colleges. Professional firms in technology, science and so forth added 93,000 employees last month to lead the way in hiring. Government jobs rose by 43,000, but it was largely a statistical mirage tied to seasonal adjustments that have been distorted by the pandemic. The private sector created just 6,000 new jobs overall. Wholesalers and energy producers also filled more jobs. Nevertheless, the longer the recovery takes, economists warn, the greater the risk that many jobs will never return.

Mortgage Rates Remain Low. The average 30-year mortgage stayed flat from last week — still near historic lows. It may be a new year and a new presidential administration, but mortgage rates are continuing to hover near all-time lows indicating our economy continues to struggle. According to Freddie Mac, the average 30-year fixed-rate mortgage rose 0.10 points this week to 2.73 percent. The 15-year fixed-rate mortgage averaged 2.21 percent, up slightly from last week’s 2.20 average (and down significantly from the 2.97 percent average the same week in 2020). This rate environment is advantageous for those of you looking to refinance in order to strengthen your financial position. Freddie Mac’s data indicates that upper-income homeowners have taken advantage of the opportunity more so than lower-income homeowners who could stand to benefit the most by lowering their monthly mortgage payment. What is the Most Over-Valued Housing Market in America. Spoiler Alert: it’s not in California! The breakneck pace of home price growth nationwide has caused more markets nationwide to become over-valued, according to a new report from Fitch Ratings. Fitch analysts estimate that home prices are 5.5% overvalued nationally as of the fourth quarter of 2020. Through December, national home prices were up some 8.9% since the start of the year, driving the overvaluation in the marketplace. Even though home price growth accelerated in 2020 due to low mortgage rates and demand/supply imbalance, the economy has not caught up. As previously reported, the demand among home buyers has far exceeded the inventory of homes for sale. To some extent, this is a reflection of the fact that many homeowners are reluctant to list their homes for sale amid the pandemic. The imbalance between supply and demand is also the result of homebuilding activity remaining muted following the Great Recession and the preceding housing bubble. Looking more locally, some housing markets are far more overvalued than others. Fitch estimates that around 25% of metropolitan statistical areas (meaning major cities) around the U.S. are more than 10% over-valued. Among the 20 largest metro areas nationwide the most overvalued city is (drum roll!)…Las Vegas, with Fitch estimating that home prices are over-valued approximately 28%. Dallas-Ft. Worth was next, with Fitch projecting prices overinflated between 20% and 24%. Fitch also examined which states had the most overvalued housing markets. Idaho led this list, with Fitch projecting home prices there overly elevated between 30% and 34%. Idaho has become a popular destination for transplants from California, particularly from San Francisco and Silicon Valley. The rise of remote working amid the pandemic has helped boost demand for homes in Boise, such that home prices have risen upwards of 10% in recent years. Other states whose housing markets were found to be over-valued (in excess of 10%) included Nevada, Arizona, Texas, Kansas, North Dakota and Washington.

First Tiny Home Community Opens. L.A. County's first "tiny home community" (for people needing shelter – not tiny people!) welcomed its first residents on Monday. The Chandler Street Tiny Home Village in North Hollywood was built by the Hope of the Valley rescue mission, in partnership with Councilman Paul Krekorian. It has 40 homes and 75 beds. Each tiny home is 64-square-feet, with heating and air-conditioning, two beds, windows, a small desk, and a locking front door. Ken Craft, Hope of the Valley founder and CEO, says the locking door is what sets the tiny home model apart from traditional shelters. Residents will also have access to onsite meals, WiFi, toilets, showers, mental health/housing support, job training/placement, and a small dog run. The pallet shelter structures are made by a Seattle-based company. The rescue says it costs about $3,000 to build each tiny home. They are both inexpensive and easy to assemble [written by the guy who can’t assemble anything that comes in a box from IKEA if my life depended on it]. They're also a great fit for this kind of housing set-up because they're standalone structures, each placed six-feet apart, which allows some privacy and independence for residents. The two-bed setup allows couples to be together, or a parent and adult-child. There's also an emphasis on security. The complex has video surveillance, a nine-foot fence surrounding the property, and a single, guarded entry point. To qualify, individuals must be homeless and live within a three-mile radius of the site. The property is already full and has a waitlist. Hope of the Valley also plans to open another tiny home village in North Hollywood, with 103 homes (200 beds total). The organization operates nine shelters in the area, each of them slightly different. Tiny homes are “interim” housing. The idea behind the project is to provide unhoused Angelenos with a safe, warm place to sleep now, while the organization helps them find a more "permanent" housing.

The Valley is Important to Los Angeles. There’s only “the Valley.” You don’t need to say San Fernando Valley; just say “the Valley." The Valley for way too long was the Rodney Dangerfield stepchild of Los Angeles. Anywhere else, the Valley — with its million and a half people in its 250-ish square miles — would be the massive star at the center of its own civic solar system. But most of the Valley lies within Los Angeles city limits — in fact, about half the acreage of L.A. (and 1/3 of the population), when you add it up. And so the Valley sometimes finds itself playing extra to Hollywood, and chasing the tires of City Hall’s official vehicles that occasionally come over the hill. Starting in 1797, the San Fernando Mission became the first intrusion into seventy centuries of Native American life in the Valley. But the Valley, chopped down and cut up from the Mexican land-grant kingdoms, slowly became pleasant little farms with pleasant little groves of walnuts, peaches, and oranges. About 10 years after the Civil War, men with the legendary names of Lankershim and Van Nuys commenced vast “dry farming” of wheat and barley. You probably know the Valley’s history from movies, like "Chinatown" for example. In 1905, the city of L.A. won a lawsuit forbidding Valley farmers and ranchers from tapping into the water under their own feet. In fact, L.A. stuck water meters in the ground just to ram the point home. The city would soon stick a 233-mile-long concrete straw into Owens Lake and suck up that water too. Meanwhile, the farmers were being “droughted out,” and a clandestine downtown consortium was busy buying up Valley land on the cheap and sometimes on the sly. When the vast Valley was finally annexed by L.A. in 1915, historian Kevin Starr called it the “Louisiana Purchase of Los Angeles.” The Valley kept on subdividing itself into ranches and ranchettes, and then housing tracts, followed by more housing tracts. On November 4, 2002, the Valley’s disaffection peaked: It tried by the ballot to secede from L.A., and damn near succeeded. Fortunately, the Valley has outlasted many of its stereotypes. The big citrus groves are mostly gone now. The white middle-class suburbia of restrictive covenants is now as diverse as the core of L.A. itself. The "Boogie Nights" Hollywood-adjacent factory for porn movies was run off by condom regs and online X-cess. The addled Valley girl of irritating vocals (“Fer SHUR, TO-tally) and her natural habitat, the Sherman Oaks. Galleria, are long gone. Two decades ago, when Kevin Roderick wrote his book “The San Fernando Valley: America’s Suburb,” the title was already outdated. But it’s even more outdated today, because now the Valley has its own suburbs, and has become an integral part of Los Angeles in terms of culture and demographics, and who lives there and what goes on there. Drive around the Valley today and you’ll see lots of blue “community signs’” proudly designating dreamed up names for sub-neighborhoods that want to distinguish themselves from Los Angeles’s older established neighborhoods.

Downtown’s Infamous Cecil Hotel. Cecil Hotel is considered by many to be among the most haunted buildings in Los Angeles, if not the world. The hotel started in 1924 as a ritzy destination, but fell into disrepair over a century of massive changes in Downtown L.A., and most recently served as affordable lodging for Skid Row residents. Now known as “Stay on Main,” the creepy downtown hotel reportedly served as a base of operations for serial killers Richard Ramirez (the infamous “Night Stalker”) and Jack Unterweger (murderer), and has been the site of multiple unsolved murders and numerous suicides. The hotel is even linked to the murder of Elizabeth Short (better known as the “Black Dahlia”). But what might be the most famous—and chilling—incident of all, is the death of Elisa Lam. In early 2013, Lam’s body was discovered in a water tower on the hotel’s roof. Lam's case became a global sensation due to disturbing surveillance video of her alone in one of the hotel’s elevators having some type of episode–one that has been explained as everything from a bipolar episode to demonic possession–shortly before her death. The elevator video of Elisa Lam went viral and legions of amateur detectives used the internet to try to solve the mystery of what happened to her, a 21-year-old Canadian tourist on her first trip to Los Angeles. The fact that Elisa disappeared in a location that has a multi-decade history of crimes is what makes her case so fascinating. Amy Price was the hotel’s general manager in 2013 and for over a decade. When asked, Price said she saw over 80 deaths at the hotel during her ten years at the hotel. Which begs the question; what role does a particular property play in creating an environment in which multiple crimes seemingly take place over and over again? I raise this question because a new documentary about the Cecil Hotel lands on Netflix this week. Created by Joe Berlinger, the Emmy-winning director of The Ted Bundy Tapes and Jeffrey Epstein: Filthy Rich, Crime Scene, "The Vanishing at the Cecil Hotel" arrives this Wednesday, February 10. The four-episode docuseries examines the eerie past of the Cecil Hotel, before centering its attention on the mysterious death of Elisa Lam.

Matt Damon Says Goodbye to Pacific Palisades. Matt is switching coasts. After shelling out $16.7 million for a New York penthouse, the Oscar-winning actor has listed his Pacific Palisades retreat for $21 million. The “Ford v Ferrari” star has owned the home for nearly a decade. Records show he paid $15 million for the half-acre estate in 2012 and spruced up the place during his stay. Designed by Los Angeles architect Grant Kirkpatrick, the architectural residence covers more than 13,500 square feet and reflects its coastal setting with a lively mix of warm wood, natural stone and Asahi glass. The atrium serves as the centerpiece, a voluminous, light-filled space set under a 35-foot mahogany vaulted ceiling. There’s also a living room with a fireplace, an indoor-outdoor dining room and a center-island kitchen done in mahogany and bluestone. The estate has plenty of room for amenities including a game room, bar, office, gym, media room, wine cellar and tasting room. Upstairs, the primary bedroom suite (notice we're not allowed to say "master suite" anymore) adds extras such as a massage room and private terrace. It’s one of seven bedrooms and 10 bathrooms. Outside, palm trees surround a resort-style backyard with a swimming pool, spa, waterfall, koi pond and Hawaiian-inspired lanai with a lounge and dining terrace. Damon, 50, ranks as one of the highest-grossing actors of all time. He has appeared regularly in films since his 1988 debut in “Mystic Pizza” with standout roles in “Saving Private Ryan,” “The Departed,” the “Bourne” franchise and “Good Will Hunting,” for which he won an Academy Award for best original screenplay. If you’re interested, don’t call me! Eric Haskell of the Agency holds the listing.

Buy A Town? After all, why buy a house when you can buy an entire city! If yes, boom-and-bust Nipton California could be yours. The 80-acre patch in the Mojave Desert with one hotel, one restaurant, five eco-cabins, 10 teepees and an RV park is up for sale... again. Located on the eastern edge of San Bernardino County, where it bumps up against Nevada, Nipton feels far away from everything. But it's only a one-hour drive from Las Vegas and three hours from L.A., off the busy I-15 corridor on Nipton Road. Surrounded by flat valleys and mountain vistas, the landscape of creosote and yucca is broken only by the occasional road or the glare from the Ivanpah solar plant, whose mirrors reflect light into the sky. Some 20 rent-paying residents call Nipton home. Most of them are here to get away from it all. Imagine a small, friendly town with a slow, very slow, eco-friendly lifestyle, even if it is in the shadow of rare earth mines and solar towers. This vision is in line with that of Jerry Freeman, who bought Nipton in 1984 and whose widow, Roxanne Lang, has put it up for sale. Nipton is a place out of time, a tiny desert outpost caught in a long cycle of flashy booms and extended busts, waiting for a new dream. In 2017, Nipton made headlines when cannabis technology company American Green bought the town for $5 million with Freeman and Lang providing partial “owner financing.” The company planned to transform it into "the country's first energy-independent, cannabis-friendly hospitality destination." But then San Bernardino County passed a resolution banning commercial cannabis activity, including growhouses and dispensaries, in unincorporated parts of the county, such as Nipton. In other words, American Green was now banned from growing and selling marijuana in the town it bought for that very purpose. The ban remains in effect to this day. Soon American stopped making mortgage payments. In late 2019, previous owner Roxanne Lang foreclosed and is now the mayor, so to speak. Lang is asking $3 million for the 80 acres that comprise the town, a figure that seems both completely reasonable to those who love the place and ridiculous to those who couldn't imagine living there. Regardless, the last couple of months haven't yielded a buyer, as yet. Nevertheless, the locals dream a buyer will appear and transform Nipton into a sustainable eco-village and tourist outpost for the Mojave National Preserve. They pray a new owner with utopian idealism and deep pockets will ride into town. If intrigued, call Roxanne….

Southern Californians are Obsessed with Area Codes. Long ago, when the world was young and there were only landlines, one area code (213) ruled Southern California, from the Mexican border to Bakersfield. Then it began to divide and multiply. 714 was born, and 805, and then shockingly L.A. became the first city in the U.S. with THREE area codes within city limits (310, 213 & 323). Now, nearly 75 years after the birth of 213, Los Angeles County has 10 area codes, eight rooted in geography and two floating atop (“overlay”) heavily used 310 and 818. Does your area code mean anything to you? Of course it does! To the mystification of newcomers, we are consumed with which area code we have. Why is that? A sociologist named James Katz, who studies the social effect of telephone technology, says that Californians are pricklier about their area-code identities than people anywhere else in the world! These three digits are like compass points on our mental map, and thus, when they take away your number, in a certain sense, they’re erasing our identity. Since the “big bang” from the original 213 spalled off so many area codes, what have those identities become? In 1994, a numerologist in a Times op-ed explained (perhaps tongue-in-cheek) that 213, the original hardcore heart of L.A., is the area code of the working class, “without pretensions.” The telephones of 310 occupy a more “highbrow, ritualized environment,” and the folks of 818 — reaching from valley to valley then, the San Fernando to the San Gabriel — are “old-fashioned stand-up values” incarnate. According to Katz, our area codes still lend themselves to stereotypes: 310: Enviably rich, and the plastic surgeons who enable them. 661: Cowboy boonies and Edwards Air Force Base. 818: Valley Girl boonies and Bing Crosby’s R-1 paradise. 626: Tournament of Roses parade, and that other valley. 213: Staples Center and LAPD headquarters. 323: Hollywood & vintage-bungalows expelled from 213. 562: Queen Mary and L.A. County’s only off-leash dog beach.

This week. Looking ahead, investors will continue watching Covid case counts decrease, vaccine distribution increase, and the size of the government's stimulus bill go through the roof. Beyond that, it will be a very light week for economic reports. Of note, the Consumer Price Index (CPI) will come out on Wednesday (2/10). CPI is a widely followed monthly inflation report that looks at the price change for goods and services. And on Friday (2/12) the Consumer Sentiment Index will be released. Weekly Changes: 10-year Treas: Rose 0.10 points Dow Jones Avg: Rose 1,200 points NASDAQ: Rose 600 points Calendar: Tuesday, 2/9: JOLTS Wednesday, 2/10: Consumer Price Index Friday, 2/12: Consumer Sentiment Index