Will Housing Get Better?

In this issue of the Peel:

• ?? The housing horror show continues, but hope is on the rise
• ?? Adobe is riding the AI wave while RH is falling in the housing market
• ?? Consumer sentiment needs a prescription for Prozac

Market Snapshot ??

Banana Bits ??

• U.S. rent price changes are still drastically lower than reported shelter inflation
• Former Pres Donnie T faces allegation of extreme yapping at a recent meeting with U.S. CEOs
• Being the fastest-growing ETF of all time isn’t enough for Larry Fink
• Credit cards linked to rent are great, except for the banks offering them

The History of the US Stockmarket is Mostly one of Bull Markets, But...

.. to get the real picture you need more than just one chart! – Topdown Charts have released a Major Report on the US Stockmarket that is FREE for Daily Peel readers where they offer a deeper perspective across price, fundamentals, sectors/styles/global, and explain why these issues matter for investors, where the best opportunities are, and some surprising facts to think about.

Access the Report Now

Macro Monkey Says ??

The Coming Housing Boom

If what goes up must come down, then what goes down must come up, too… right?

Gravity is a tricky business, so someone’s gonna have to call Neil deGrasse Tyson on that one.

But for the housing market, it’s much simpler. May 2024 saw the 3rd lowest number of home sales of any month in the last decade, so let’s get into it.

The Numbers

The housing horror show continued in May with only 408k complete home sales, a 1.7% decline from April and a 2.9% decline from last year, according to Redfin data published Friday.

Source

Only October 2023 and May 2020 have posted fewer monthly home sales since the damn Obama administration.

Rates hit their highest point in most of our lifetimes last fall, and hmm… I’m not sure what was going on in the spring of 2020…? Clearly must’ve been a great time if no one was moving, though.?

Home prices continued to accelerate in May, too. So, if you were thinking, “Well, at least prices must’ve come down,” then it’s time for you to move out of the rock you’re living under.

Source

America’s median home sale price is approaching $450k for the first time ever. Coming in at $439.7k in May, that’s 1.7% monthly growth and 5.1% for the year.

That’s the bad news. However, the good news is that there’s good news for the future of the housing market coming under construction in the meantime.?

Price cuts are rising while everyone is begging for price cuts.

Literally though. The Chief Economist of the No-Idea-What-They’re-Talking-About committee—Massachusetts Senator Elizabeth Warren—paid a staffer to write a strongly worded letter to JPow asking him to “cut rates pretty please with a cherry on top.”

Rate cuts can only do so much in the housing market without re-triggering inflation. The only way this gets solved is with increased supply, ideally via new construction.

Source

And new listings did grow in May, rising 0.3% monthly and 8.8% annually. However, at just 527.8k, that’s still 20% below pre-pandemic listing levels.

New construction has been an issue since the GFC, as homebuilders fear overbuilding and can take advantage of higher home prices by maintaining a limited supply. But, since the onset of JPow rate hiking nuclear bombs, existing owners feel “locked in.”

It’s tough to get grandma and grandpa to ditch their 3% mortgage when prevailing rates average more than twice that. Plus, even if (when) JPow cuts rates later this year, falling interest rates tend to lead to higher prices of the principal asset in question.?

So, we’d have lower rates, but simultaneously, rising prices don’t help buyers too much.

However, it seems that homeowners are starting to get the message that prices should fall when rates go sky-high. The percentage of listed homes experiencing price cuts is already well on the rise:

Source

The Takeaway?

Although falling rates tend to lead to increased home prices, in this market, falling rates should come with a non-linear increase in listings as homeowners with a higher need to move become more accepting of the new interest rate paradigm.?

Much like wannabe homebuyers are accepting the reality of “higher for longer” mortgage rates, as evidenced by last week’s spike in new mortgage applications, home sellers needing/wanting to move will experience a similar acceptance.

You know it’s a good compromise when everyone’s upset, and that’s what we expect in housing and mortgage rates.

As rates fall, listings increase, and home prices do whatever makes the least amount of sense, the enormous demand for homes will bring normalization back to markets.?

This is largely why home buyer and builder stocks—like Zillow and Builder’s FirstSource (both in WSO Alpha) spiked last week. F*ck it, might as well make some money while the market is in mayhem… might help with your future mortgage payment.

What's Ripe ??

Adobe (ADBE) ??14.5%

• We often discuss how AI could be society’s savior or go full Terminator. Adobe is the corporate version of that, and so far, it’s been more of a savior.
• The software maker specializing in editing danced on expectations last quarter. Sales grew 10% YoY, helped by their newly AI-powered Digital Media segment.
• Gen AI could disrupt the sh*t out of Adobe’s business, but so far, the firm has incorporated the tech well instead of suffocating under it.

VinFast (VFS) ??10.2%

• Yapping can be a highly effective business strategy. And VinFast put on a masterclass on yapanese on Friday.
• In an SEC filing, the Vietnamese EV maker stated they expect to grow sales in the U.S. by “30x to 40x” from the $6.3mn in sales last year.
• That implies sales of $192mn-$250mn. Best of luck to ‘em, but with yesterday’s share price gains, it looks like it’s already working out.

What's Rotten ??

RH Inc (RH) ??17.1%

• I can’t tell who hates high rates more—Bank of America and their $110bn of unrealized losses, or RH and their millions of unrealized customers.
• Citing the housing market’s high rates and prices, RH posted a wider loss than expected and issued downbeat guidance in their latest quarter.
• The premium furniture supplier relies on home purchases to drive sales, but recent strong mortgage application data may save the day going forward.

Big Lots (BIG) ??11.2%

• Big Lots is facing a big loss in its earnings, stock price, and (presumably) will to live among executives.
• The discount retailer posted garbage earnings, losing $4.51/sh and sending shares 18% lower. Now, the tumble keeps on growing.
• Shares are off over 40% since earnings and 80% since highs last summer. Extreme bargains don’t work in extreme inflation.

Thought Banana ??

Losing Cents-iment

Expect a bear market in “rich” people cringe now that consumer income expectations just fell as far as Ellen DeGeneres’s public reputation.

The University of Michigan just released its preliminary survey results on consumer sentiment in June, and well, this one was a doozy. Let’s take a look.

The Numbers

Consumer expectations of real income fell to the lowest level in exactly 12 years last month.

Source

Since the onset of the pandemic, consumer incomes have grown in excess of historical trends thanks to the extreme imbalance in labor markets brought on by the pandemic and its effects.

Now, the labor market appears to be coming more into balance, as evidenced by a normalization in the national unemployment rate, rising applications for unemployment insurance, and a falling job opening to unemployed persons ratio.

This is starting to catch on among Americans, and looking at the data, it makes a lot of sense.

Source

Coming into 2024, inflation started to once again outperform growth in real disposable personal income.?

So, although inflation is falling, the link between inflation and unemployment is coming into view. Falling inflation is a sign of a slowing economy, and a slowing economy partly manifests in reduced labor demand among employers.?

The Takeaway?

Consumers hate inflation more than they hate unemployment until they’re the ones becoming unemployed.

Now that the risk of becoming unemployed is rising as inflation is falling, it seems that fear of job loss is overtaking frustration with rising prices.

Don’t get me wrong—they’re both still very present, but if consumers are only now losing sentiment like the Mavs are gonna lose in the finals, changes in the labor market seem like the obvious explanation.

Oh yeah, and Go Celtics.

The Big Question: What are your views on the labor market? Are you feeling more or less worried about your seat? Is it only going to get better or worse from here on?

Banana Brain Teaser ??

Previous ??

For the numbers, n, n+1, n+2, n+4, and n+8, the mean is how much greater than the median?

Answer: 1

Today ??

The present ratio of students to teachers at a certain school is 30 to 1. If the student enrollment were to increase by 50 students and the number of teachers were to increase by 5, the ratio of students to teachers would then be 25 to 1. What is the present number of teachers?

Send your guesses to [email protected]

Wise Investor Says ??

“The real price of everything, what everything really costs to the man who wants to acquire it, is the toil and trouble of acquiring it.” — Adam Smith

How Would You Rate Today's Peel??

??All the bananas? ? ? ? ? ? ? ? ? ? ? ? ???Meh? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ??Rotten AF

Happy Investing,

David, Vyom, Jasper & Patrick