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Homebuilders are done until mortgage rates fall

Tuesday’s housing starts report shows that homebuilders are done with single-family construction until mortgage rates fall.
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Tuesday’s housing starts report clearly shows that homebuilders are going to be done with single-family construction until mortgage rates fall. Housing completion data is still struggling to get some traction, but in the coming months, builders should be able to get more housing completions done while housing permits and starts for single-family homes are in decline. If it wasn’t for solid rental demand boosting multifamily construction this year — 18% year to date —this data line would have looked much worse.

From Census: 

Privately‐owned housing starts in July were at a seasonally adjusted annual rate of 1,446,000.  This is 9.6 percent (±8.6 percent) below the revised June estimate of 1,599,000 and is 8.1 percent (±11.9 percent)* below the July 2021 rate of 1,573,000.  Single‐family housing starts in July were at a rate of 916,000; this is 10.1 percent (±10.8 percent)* below the revised June figure of 1,019,000. The July rate for units in buildings with five units or more was 514,000.



Of course, housing starts today aren’t collapsing in the way they did from the peak of 2005 because we haven’t had a sales credit boom in recent years as we did from 2002-2005, which inflated new home sales toward 1.4 million.



Currently, we are in a much different housing recession than what we had from 2005-2011. The credit cycle looks much different now than the build-up from 2002-2005.

Why do I call it a housing recession? A recession is when total activity falls to a point where production reverses and jobs are lost. For now, the homebuilders will keep labor because they need to finish the homes they have in the pipeline. However, as new home sales have fallen, the future growth in construction is done until the builders feel comfortable building more single-family starts.

As we can see below, single-family starts are falling more noticeably than total housing starts, which is still being boosted by rental demand.



Total activity in the existing home sales marketplace is falling, which means less commission transfer in that sector. Loan originations are falling amid less demand from refinancing and purchase loans, which means jobs are lost in the mortgage industry. That aspect differs from the new home sales selector, which drives housing construction, construction jobs, and big-ticket purchases for those new homes. The recent decline in copper prices is very telling; even with a recent rebound in prices, things are slowing down on the housing construction side.



In March I wrote that the new home sales sector was at risk once the 10-year yield broke over 1.94%. Currently, the 10-year yield is at 2.81%, and mortgage rates above 5% have impacted this sector more significantly than the existing home sales market.



Recently I talked about how low rates have to go to get housing back in line. In the past, builders benefitted when mortgage rates fell toward 4% and below. While we have had more than a 1% + move in rates, we are still over 5%. We can see that the builder’s confidence data has collapsed recently, going below 50 for the first time in a while, with the last print being at 49.

NAHB:


I raised the fifth recession red flag tied to housing in June, knowing that the growth rate in construction was done for this cycle until mortgage rates fell again. In 2018, when mortgage rates rose to 5%, the builders paused construction for 30 months; they were mindful of supply in the new home sales sector. We have 9.3 months of supply but of that number, 6.22 months of supply is under construction and 2.24 months of supply hasn’t even been started yet

For sure, it’s a much different housing cycle because housing completion data has been prolonged during the COVID-19 recovery. Now that demand is falling, the builders will take their time finishing these homes to ensure they have buyers ready to move in once the homes are completed.

From Census: Housing Completions Privately‐owned housing completions in July were at a seasonally adjusted annual rate of 1,424,000.  This is 1.1 percent (±14.8 percent)* above the revised June estimate of 1,409,000 and 3.5 percent (±15.5 percent)* above the July 2021 rate of 1,376,000.  Single‐family housing completions in July were at a rate of 1,009,000; this is 0.8 percent (±12.2 percent)* below the revised June rate of 1,017,000. The July rate for units in buildings with five units or more was 412,000.

During the housing bubble years, housing starts, permits, completions, credit, and prices moved together. That is not the case here, as housing completions still lag, although things are improving on the supply front.

Over time, housing permits will fall more noticeably as long as mortgage rates stay high. When the homebuilders’ confidence turns, housing permits should stimulate growth. We aren’t there yet, but the builder’s confidence data will give us the first clues when things are improving.

From Census: Building Permits Privately‐owned housing units authorized by building permits in July were at a seasonally adjusted annual rate of 1,674,000.  This is 1.3 percent below the revised June rate of 1,696,000, but is 1.1 percent above the July 2021 rate of 1,655,000.  Single‐family authorizations in July were at a rate of 928,000; this is 4.3 percent below the revised June figure of 970,000.  Authorizations of units in buildings with five units or more were at a rate of 693,000 in July.



The housing construction data looks right to me; the downtrend in activity in permits and starts should still be with us for some time. The homebuilders don’t build for charity — they’re here to make money. Also, they are facing more competitive inventory since the number of existing homes is increasing, and those are cheaper. So, they will take their time to build the homes already under construction and those homes they haven’t started on yet.

When mortgage rates fall, the narrative can change, but we aren’t there yet. Solid rental demand is keeping the multifamily construction going, but the weakness in single-family starts is here to stay; expect single-family starts to have their first decline since 2011.

The post Homebuilders are done until mortgage rates fall appeared first on HousingWire.

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Economics

Why WWE could be a good stock to buy/hold in October

World Wrestling Entertainment Inc. (NYSE:WWE) remains in defensive mode as the stock market crumbles. A year-to-date return of 37.40% makes the stock one…

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World Wrestling Entertainment Inc. (NYSE:WWE) remains in defensive mode as the stock market crumbles. A year-to-date return of 37.40% makes the stock one to hold for value preservation. This article finds WWE a good stock to trade when keenness and proper risk management are exercised.

WWE, as it is popularly known, is an integrated media and entertainment entity. It’s known for wrestling promotion, but related fields of film and American football widen its scope. 

Just like other entertainment companies, WWE was grounded by the Covid-19 disruption. As recovery began, the stock has never looked back. It has acted as a true momentum stock while maintaining an uptrend since the beginning of the year. There are clear fundamentals too.

In its second quarter, the company’s net revenue rose 24% to $328.2 million or £309.6 million. The revenue was above $322.4 million or £304.15 estimates. The earnings per share increased from $0.42 to $0.59. The company projects “strong revenue growth” in the third quarter. The raised guidance reflects rising content monetization, local media rights fees, and international ticket sales increases. 

WWE touches the bottom of the ascending channel

Source – TradingView

On the daily chart, momentum is weak on WWE as it corrected to $67. However, we can see that WWE is still maintaining the upside channel. 

Should you buy WWE

WWE has maintained momentum and recovers each time it hits the bottom of the ascending channel. The stock is a buy at the current level, preferably after recovering above the 50-day MA. Short-term traders can exit at the top of the ascending channel.

The post Why WWE could be a good stock to buy/hold in October appeared first on Invezz.

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Economics

Cities With Good Neighbors Have Lower-Than-Average Home Values

New York’s Rochester was identified took the top spot as the most neighborly city in the country.

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New York's Rochester was identified took the top spot as the most neighborly city in the country.

Many want the kind of neighbor who will stop by with fresh-baked cookies, offer gardening tips and take out the mail while they're away — a thing that, if you live in an urban mecca like New York, is just as likely as finding a spacious apartment that's available and within budget.

In honor of National Neighbor Day on Sept. 28, self-storage company Neighbor.com identified Rochester in the Finger Lakes region of New York state as the most neighborly city in the country.

The study analyzed both big and small cities through factors such as resident happiness levels and number of people volunteering their time to the community.

"It's not a surprise that Rochester is the most neighborly city this year, it's made this list each year," Joseph Woodbury, CEO and co-founder of Neighbor.com, said of the findings. "Oftentimes, we connect hospitality with small cities, but you’ll find that people in large cities are just as likely to go out of their way to help one another."

Correlation Between Neighborliness and Home Values

While Federal Reserve economic data pegs the median price of homes sold in 2022 at $428,000, the median list price identified by Realtor.com for Rochester is $150,000. 

Madison, Wis., and Provo, Utah followed Rochester as the most "neighborly" cities in the U.S. and have respective median list prices of $360,000 and $495,000.

Along with Provo, California's Oxnard breaks the list's mold with its high real estate prices — amid proximity to the beach (the city is about 60 miles from Los Angeles) and quaint Victoria architecture, the city has a median list price of $794,500.

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Other cities on the list generally fall below the national average for a standard single-family home. Grand Rapids in Michigan has a median list price of $307,500 while that number is only $175,000 in Milwaukee, Wis.

Harrisburg, Pa., and Des Moines, Iowa are two other neighborly cities with respective list prices of $215,000 and $227,500. 

Good neighbors have long been a hallmark of smaller cities with a quieter way of life — metropolises like New York and Los Angeles have very high property values, they are not exactly known for being "friendly" or "welcoming."

With a median list price of $495,000, North Carolina's Raleigh is the largest city to make the list.

Those who think New Yorkers are unfriendly need only to look outside the five boroughs — with a median list price of $334,000, Poughkeepsie also made the list for its neighborliness.

Search For the Next Big Real Estate City

As sleepy towns that paint a TV image of "neighborliness" tend to have lower demand, they may not offer the kind of real estate growth potential that many investors are specifically looking for. 

But exceptions do exist — many small cities are currently in the midst of a real estate boon and, subsequently, an explosion in real estate values.

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According to the study's authors, many homebuyers looking to move have specifically started looking for "friendlier" cities after the pandemic and are driving up demand for formerly quiet places.

Realtor.com identified Utah's Salt Lake City, Idaho's Boise and Washington state's Spokane as 2022's fastest-growing real estate markets.

"Being neighborly goes beyond a friendly wave while driving down the street or offering to water plants while on vacation," Woodbury said. "To be neighborly is opening yourself up to building relationships and ultimately a community that is rooted in compassion, trust, and care."

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Economics

Here’s Why Your Boss May Reject Your Business Travel Request

People are taking vacations again, but a once dominant travel sector is struggling to recover.

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People are taking vacations again, but a once dominant travel sector is struggling to recover.

Now that vaccines are readily available and President Joe Biden has declared that the pandemic is officially over, people are flying again. But they’re really not happy about it.

The research firm J.D. Power found that last year, when the airline industry first started to cautiously rebound, consumer satisfaction with airports reached an all-time high. But this was very likely both because of a relatively smaller sample size and that so many people were happy to fly again that they were willing to overlook a lot of what has become headache-inducing about modern airfare travel.

J.D. Power  (JD) - Get JD.com Inc. Report has found that this year, global passenger levels are nearly back up to 91% of pre-pandemic levels. 

Customer satisfaction has dropped sharply, 25 points on a 1,000-point scale, to 777, as more people have returned to airports, for reasons ranging from an increase in flight cancellations and delays to inflation-driven increases in the cost of airport food.

But while airlines are aware that customers aren’t happy, and that the Biden Administration might try to right the ship with proposals that airlines likely won’t care for, at least people are flying again.

But an additional survey by J.D. Power has revealed that while people are flying again, traveling for business (be it for in-person meetings or industry conferences), has been lagging behind and recovering at nearly the rate of traveling for pleasure. 

Is Traveling for Business on the Way Out?

J.D. Power’s research has found that many travelers doubt that travel levels will increase dramatically from where they are now, and that “a strong majority of executives believe their companies will spend less in the next six months compared to the same period in 2019, for instance, due to things like fewer trips overall or fewer employees sent when there is a trip scheduled,” according to their data.

Overall, business travel has returned to “about 81% of 2019 levels,” notes Managing Director Michael Taylor. “83% was our prediction for this quarter, we’ll see how well we did in a few weeks and add a predication for Q4.”

J.D. Power

Fears of recession and the rising costs of air tickets from inflation play a factor in the decline of business travel. But overall, the main reason is that many of us have gotten so used to working at home that two-thirds of employees would rather find a new job than go back to the pre-pandemic status quo. If employees feel they can get work done from home and don’t feel like braving traffic to return to the office, why would they feel they need to get on a plane?

So have services like Zoom (ZM) - Get Zoom Video Communications Inc. Report and Slack made the business trip redundant? Taylor has his doubts.

“But will people be meeting exclusively in the 'Metaverse' rather than in person? I do not think that will happen,” he says. “There is too much information to be gathered in face-to-face meetings, spoken and unspoken, to be replaced completely by virtual ‘reality.’”

Getty Images

So is This It for Business Travel?

Back in the heady pre-pandemic days three years ago, airlines could rely on the extra income from people whose jobs entailed a great deal of travel, and who had come to the realization that if they were going to spend a chunk of their lives on the road, they could splurge to make it a more comfortable experience. 

But if airlines want this sector to return, Taylor thinks it’s their duty to make it a more appealing option, because frequent delays and other headaches are enough to make anyone stick to Zoom.

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Airlines, Taylor says, must “create more of a “living room” experience for travelers, one that “makes travelers feel valued as patrons of the airlines, and makes people feel like individuals rather than cattle.”

Because while it’s hard to argue with the convenience, Taylor insists there is still something to be said for the occasional in-person meeting. 

“Millenia of evolution in mankind has created an awareness that can’t be described with words on a page or pixels on a screen,” he says. “People will still find advantages in meeting in-person rather than online.”

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