The missing housing boom

Welcome back to Axios Business. Did you catch me on "Axios on HBO" last night? Here's a clip. Item #3 in today's newsletter has more.

Go deeper: The Axios YouTube page is full of clips from the episode, which you can also watch in full on any of HBO's platforms.

On to the news of the day — let's start with a situational awareness:

• The British pound slipped, but was much less volatile than expected after Prime Minister Boris Johnson's Brexit deal was rejected by Parliament on Saturday.
• Christine Lagarde, the incoming European Central Bank president, said Trump's unpredictability is "hurting" trade and that his dispute with China is "going to give a big haircut" to the world economy

For more on the news of the day, sign up for one of our Axios newsletters.

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1 big thing: The missing housing boom

By: Dion Rabouin ? Newsletter: Axios Markets  

The real estate market should be experiencing a boom — but it's not. In fact, the U.S. housing market has been stagnant for the last 3 years and is beginning to turn lower, data shows.

Why it matters: Anyone who bought residential property in the last 40 years, even at the height of a bubble, has been able to count on rising home values. But those days may be over: Real estate prices have far outpaced incomes and lost their correlation to them.

• For typical homeowners, "wealth will not increase as fast as it did in previous years, as on average the growth in property prices is close to an end," Maciej Skoczek, real estate analyst at UBS Global Wealth Management, tells Axios.
• "Those who buy a city apartment at current high valuations are likely to have to adjust to a lengthy lean period."

Why there should be a boom: The generation that's reaching prime home-buying age is large by historic measures; mortgage rates are near historic lows; housing price growth has slowed to a standstill; the unemployment rate is the lowest it has been in 50 years; and wages are rising at the fastest pace in a decade.

What's happening instead: There is a serious lack of qualified and/or interested buyers. And even with ultra-low mortgage rates, prices are not falling enough to bring in new customers.

• There are also meaningful changes in the makeup of the prime-age potential homebuyers — who now have more debt than ever, are more likely than before to live with their parents, and are reconsidering the attractiveness of a mortgage.

And there's an inventory problem. Not enough affordable single-family homes are being constructed, and builders are focusing their efforts on large, expensive projects, Robert Dietz, chief economist for the National Association of Home Builders, argues.

• Declining worker productivity, labor shortages, and regulatory costs also are putting a dent in housing supply.
• As older, more skilled workers retire and younger, less skilled builders take their place, this problem is likely to get worse.
• "I’ve told the industry we’re going to see worker productivity go down before it goes up," Dietz says.

The combination of inflated prices and overburdened Americans has translated to fewer home sales today than in the year 2000, Lawrence Yun, chief economist at the National Association of Realtors, notes.

• "We take a survey of consumers and ask the question, 'Is it a good time to buy?' The number of people who say it’s a good time has overall been turning down."

The bottom line: The world is changing. It's "the end of the boom," Skoczek says.

Go deeper: The global real estate rethink

Sign up for Dion’s Markets newsletter for more on the real estate market.

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2. The power of authoritarian hush money

By: Erica Pandey ? Newsletter: Axios Future

Illustration: A?da Amer/Axios

The same American CEOs and celebrities who publish bold op-eds and stand up for social issues in the U.S. are playing censor for Beijing and cozying up to the Saudi royals.

Why it matters: Never before has authoritarian governments' ability to silence America's rich and powerful been so starkly on display.

The latest: China has been twisting the NBA's arm over a single pro-Hong Kong tweet from Houston Rockets general manager Daryl Morey.

• The threat of losing access to the massive, lucrative Chinese market has pushed the NBA, Morey and even basketball superstar LeBron James to bend to the Chinese Communist Party. And China went as far as to ask the NBA to fire Morey, Commissioner Adam Silver said.

The big picture: It's not just China. American companies have long ignored attacks against democratic values in authoritarian countries that are willing to shell out for their products or services.

The American intelligence community acknowledges that the Kremlin interfered in an American presidential election and committed a nerve agent attack on British soil. But American corporations still maintain strong ties to the regime, even though the U.S. has had sanctions in place against Russia since 2014.

• Companies like Boeing, Ford, and McDonalds all consider Russia a big growth market, per Reuters.
• McKinsey, along with Paul Manafort, was paid to clean up the image of the pro-Russian Ukrainian politician Viktor Yanukovych, who decried the West and was convicted of financial fraud, reports the New York Times.
• “They don’t want to alienate regimes, or they would lose business," David J. Kramer, a former assistant secretary of state, told the Times.

Journalist Jamal Khashoggi was murdered by the Saudi royal family, but it's business as usual between U.S. companies and the Saudi government.

• The Saudis are the biggest customers for American weapons and the biggest source of capital for Silicon Valley startups.
• Wall Street is still vying for the IPO of Saudi oil giant Aramco — a deal that could be worth up to $2 trillion.

But no country has pushed American people and companies around like China.

"China is in a different category from anything else — and maybe anything else in world history — because there's never been such a fiercely authoritarian regime that had such overawing market power," says Larry Diamond, a senior fellow at the Hoover Institution. "We're effectively losing our 1st Amendment rights because of an external power."

• U.S. firms are not just doing business with China despite its human rights abuses — they're policing speech and expression to bend to Beijing's will.
• The list is almost endless. The American companies who have apologized to China or censored themselves to please the Chinese Communist Party include Apple, Marriott, the Gap, all three big airlines, shoemaker Vans, gaming company Activision Blizzard, and the NBA.

What to watch: China is only getting richer and stronger. Says Diamond, "We're just in the early stages of this."

Go deeper: Corporate America's parochial morals

Sign up for Axios Future for more from Erica on the double standard in corporate America.

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3. Inside the esports investment boom

By: Dan Primack ? Newsletter: Axios Pro Rata

Illustration: Sarah Grillo/Axios

Ever been at a party where you just felt you didn't belong? Now imagine that there are over 13,000 people at the party. That was me recently at Philadelphia's Wells Fargo Center while filming an "Axios on HBO" segment about professional esports.

The big picture: It was the final match of Overwatch League, which mimics traditional pro sports leagues by having geographically based teams. Over its first two seasons those teams have all played out of an Activision Blizzard-owned arena in LA, but next year, they'll move to home venues.

• There are widespread concerns that pro esports is an investment bubble, with too many new leagues going after the same dollars.
• Those worries were largely absent from the Wells Fargo Center. Probably because it's hard to be vexed in the midst of cosplay.

Bobby Kotick, CEO of Activision Blizzard, said that he doesn't view Overwatch League as a marketing cost for the game itself, but instead believes it could eventually rival or top traditional U.S. sports leagues.

• When I asked why he scheduled the finals on a Sunday afternoon against NFL games, he just shrugged and said, "We have a different audience."

Angela Ruggiero, a four-time Olympic ice hockey player and current head of Sports Innovation Lab, said that esports players exhibit many of the same traits as traditional athletes, including performance deterioration with age.

• She's also a former IOC member who predicted that esports will become part of the Olympics, although likely via a proprietary game overseen by a dedicated, nonprofit federation.

Andy Miller, owner of the San Francisco Shock and other esports teams, says he paid a $20 million franchise fee for Overwatch and that his esports org expects to be "very close to profitable if not profitable" next year.

• Miller, a serial tech entrepreneur who also owns a piece of the Sacramento Kings, isn't too worried about saturation or staying power of individual games: "That's a big risk, but there's a history there. ... Look at Counter-Strike. That game is 20 years old and they're having a sold-out tournament in Brooklyn."

The bottom line: The big difference between pro esports and traditional sports is who's in charge. In esports, the publisher is king. The commissioner works for the CEO, not for the franchise owners.

• It's a model that makes sense for now, kind of like how console-makers once controlled game development. Well, until a group of Atari developers created Activision in an act of decentralized rebellion that today's Activision Blizzard would be wise to remember.

Go deeper: Axios' deep dive on the business of sports

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