The House The Pandemic Built
Great Ones, it’s starting to come true — just like I said it would. The much-vaunted housing market is beginning to show cracks … again.
I shouldn’t say “beginning,” though. These cracks have been forming for a while, as anyone who keeps up with their daily Great Stuff already knows. But, let’s quickly recap for those slackers out there:
• Who Disturbs My Lumber (November 12, 2020): “If demand outstrips supply, you’ll also see the cost of new homes rise significantly, which could temper the housing boom.”
• Home Is Where The Lumber Ain’t (March 17, 2021): “Lennar’s putting up its best optimistic front about the “continued robust market conditions,” though methinks it’s only a matter of time before material costs, low interest rates and easy money lift home prices to unpalatable heights.”
• The Other Other “D” Word: Demand (June 3, 2021): “The number of buyers willing to overpay (and overleverage) for housing is dropping like a rock.”
• Financial Feudalism (June 11, 2021): “In short, newlyweds, first-time homebuyers and retirees are not just bidding against each other … they’re also now bidding against Wall Street. And it’s exacerbating not only the ridiculous rise in home prices but also the massive surge in rental prices.”
• Quote of the Week (June 15, 2021): “These higher costs have moved some new homes beyond the budget of prospective buyers, which has slowed the strong pace of homebuilding.”
That’s quite the parade, but the march is far from over…
The latest news from the housing front follows this trend. According to the Mortgage Bankers Association, mortgage demand fell 6.9% last week due to record high prices.
Home refinancing fell 8%, while mortgage applications for new homes fell 5%. Year over year, refinancing is down 15%, and new home mortgage applications are down 17%. Clearly, homebuyers are getting more than a little fatigued with soaring home prices, which have risen for 11 months straight and just posted their biggest gain in more than 30 years in April.
Mortgage rates, meanwhile, have done the opposite, rising from about 2.85% at the beginning of the year to 3.8% as of last week.
Slacking demand in the housing market is already pushing key homebuilding material costs lower. For instance, after hitting an all-time high of $1,711 per thousand board feet in May, lumber prices have cratered 41%.
This brings us back to our June 15 Quote of the Week … which, basically, is 2021’s Quote of the Year:
Sooner or later, economic growth has to expand enough to justify current housing prices … or those prices must fall.
The pandemic squeeze in the housing sector is coming to an end. Production is coming back online. Supply is coming back online. But housing prices remain stubbornly high … and you can be sure that companies like Blackstone and Fundrise LLC are at least partly responsible for this trend.
But Wall Street can’t buy houses forever … can it?
The bottom line is that something must give in the housing market. And if the U.S. economy isn’t strong enough to help put in a reasonable floor, home prices could be in real trouble … along with the many Americans counting on building equity in those homes.
It’s a confusing time for investors. (And not just in the housing market!) But today, you’ll get the clarity you’ve been looking for.
The very man who’s already guided over 100,000 Americans with his investment insights shows you where the market is headed over the next 10 years … and which stocks will lead the way.
He personally sent out a warning a week before the coronavirus crash. And his firm has predicted a number of booms and busts with stunning accuracy. So, you’ll want to pay very close attention. Go HERE for details.
Shares of dronemaker AeroVironment (Nasdaq: AVAV) dropped more than 11% today as investors expressed discontent with the company’s quarterly report. Earnings beat expectations, but revenue missed, and costs were higher across the board.
Wall Street appears to be worried about growth for AeroVironment, but I don’t see it. I mean, we have Democrats in control of Washington, and we all know how they like to bomb and spy on things from a distance … which should play right into AeroVironment’s wheelhouse.
Meme stock and home goods retailer Bed, Bath & Beyond (Nasdaq: BBBY) jumped more than 12% in the wake of a mixed quarterly report today.
Earnings whiffed expectations by $0.03 per share, but revenue spiked 49% to beat the consensus estimate. Same-store sales growth of 86% was the real driver today.
The impressive sales growth prompted CEO Mark Tritton to ramble about “green shoots” turnaround strategies and students wanting to “have that college moment but were robbed of it.” Wait … since when is Bed, Bath & Beyond is a college moment?
I don’t think it’s possible to recreate many peoples’ “college moments” in a Bed Bath & Beyond … legally. I mean … does Bed Bath & Beyond even sell bead curtains, patchouli incense or mandala tapestries?
Elon Musk took to Twitter to rant away last night, which means:
A. Someone trash talked Tesla (Nasdaq: TSLA).
B. Elon is back on the crypto train or…
C. Some slight regulatory holdup is stuck in Elon’s craw.
If you picked option C, here’s your gold star for the day. I’m proud of you.
Over the weekend, a SpaceX launch was delayed because an aircraft entered the designated keep-out zone, which is “unreasonably gigantic,” according to Elon Musk.
He continues: “There is simply no way that humanity can become a spacefaring civilization without major regulatory reform. The current regulatory system is broken.”
I mean … I don’t disagree. The FAA seems woefully unprepared for the billionaire space race — or Elon’s “unreasonably gigantic” ego. The FAA should just let Elon, Branson and Bezos duke it out to see who gets to live their rocket-powered Bond villain fantasy already…
This is just a pet theory, but I think Musk has been extra irritable since the FAA gave Virgin Galactic (Nasdaq: SPCE) the licensing for commercial spaceflights. But that was where the good news ran out for Virgin Galactic…
Fresh off last week’s 39% plus rally — and the 20% plunge that followed — Virgin stock was hit with a double downgrade today.
Bank of America dropped its rating on SPCE shares from buy to underperform, noting that the hype surrounding Virgin’s new commercial spacefaring ability was already reflected in the stock’s price.
See? This is why we don’t chase moonshots, Great Ones — they become craters.
In last week’s poll, we wanted you to pick out the biggest antitrust offender from a lineup of the usual monopoly suspects. You Great Ones were … surprisingly divided on this one.It is Wednesday, my Great Ones!
Facebook and Google tied at the top with 30.4% of the votes (each). Amazon came in a distant third with 26.1% of your votes, while the last 13.1% of you voted for Apple.
Thanks to every one of you who chimed in! It looks like regulators have their work cut out for them… I mean, as far as Facebook’s antitrust case is concerned, the Federal Trade Commission and 46 state attorneys can’t be wrong … can they?
While the Feds chase their tail with monopoly whack-a-mole, let’s move on to bigger and better things: a new Poll of the Week for you to ponder.
I’ve yapped your ear off about housing since, like, last November. And yet, that cracked sandcastle of a housing market has yet to succumb to the tide. My main question for you is … when?
When will sense, logic and fair valuations return to the housing market — if ever? Click below and let me know:
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And if you’ve got more to say about the housing market’s approaching demise, by all means, let us know! Who knows? You might just see your hot takes in tomorrow’s edition of Reader Feedback.
But … that won’t happen unless you write in to us, obviously! So go on — share those thoughts you’re stewing on. Rant and rave away: GreatStuffToday@BanyanHill.com is where the magic happens.
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Until next time, stay Great!
Editor, Great Stuff