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Why home prices are still rising even as inventory recovers

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Housing prices rise despite more supply: Here's why

Anyone out shopping for a home today knows there is still precious little for sale.

The housing market is just beginning to come out of its leanest few years in history. Inventory of both new and existing homes is finally rising, but there is something suddenly strange in the numbers: The supply of newly built homes appears to be way too high.

The numbers, however, are deceiving due to the unprecedented dynamics of today’s housing market, which can be traced back two decades to another unprecedented time in housing, the subprime mortgage boom.

All of it is precisely why home prices, which usually cool off when supply is high, just continue to rise.

The supply scenario

There is currently a 4.4-month supply of both new and existing homes for sale, according to the National Association of Home Builders, or NAHB. Months’ supply is a common calculation used in the market to measure how long it would take to sell all the homes available at the current sales pace. A six-month supply is considered a balanced market between a buyer and a seller.

Supply was already low at the start of this decade, but pandemic-driven demand pushed it to a record low by the start of 2021 at just two-months’ supply. That shortage of homes for sale, combined with strong demand, pushed home prices up more than 40% from pre-pandemic levels.

Now supply is finally beginning to climb back, but the gains are mostly in the new home market, not on the existing side. In fact, there is now a nine-month supply of newly built homes for sale, nearly three times that of existing homes. New and old home months’ supply usually track pretty closely. New construction now makes up 30% of total inventory, about twice its historical share, according to the NAHB.

Single-family homes in a residential neighborhood in San Marcos, Texas.

Jordan Vonderhaar | Bloomberg | Getty Images

“June 2022 recorded the largest ever lead of new home months’ supply (9.9) over existing single-family home months’ supply (2.9),” wrote Robert Dietz, chief economist for the NAHB. “This separation makes it clear that an evaluation of current market inventory cannot simply examine either the existing or the new home inventory in isolation.”

This unusual dynamic has been driven by both recent swings in mortgage rates and an unprecedented disaster in the housing market that began 20 years ago.

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The foundation of today’s tricky numbers

This housing market is unlike any other because of economic forces unlike any other. First, in 2005, there was a massive runup in home sales, homebuilding and home prices fueled by a surge in subprime mortgage lending and a frenzy of trading in new financial products backed by these mortgages.

That all came crashing down quickly, resulting in one of the worst foreclosure crises since the Great Depression and causing the ensuing Great Recession. Single-family housing starts plummeted from a high of 1.7 million units in 2005 to just 430,000 in 2011. By 2012, new homes made up just 6% of the total for-sale supply and, even by 2020, housing starts had yet to recover to their historical average of about 1.1 million units. They sat at 990,000.

Then came the Covid-19 pandemic and during that time, consumer demand surged and mortgage rates set more than a dozen record lows, so builders responded. Housing starts shot up to 1.1 million in 2021. The Federal Reserve was bailing out the economy, making homebuying much cheaper, and the new work-from-home culture had Americans moving like never before. Suddenly, supply was sucked into a tornado of demand.

Mortgage rate mayhem

The current strange divide in supply between newly built and existing homes is also due to roller-coaster mortgage rates, dropping to historic lows at the start of the pandemic and then spiking to 20-year highs just two years later. Millions of borrowers refinanced at the lows and now have no desire to move because they would have to trade a 3% or 4% rate on their loans to the current rate, which is around 7%. This lock-in effect caused new listings to dry up.

It also put builders in the driver’s seat. Homebuilders had already ramped up production in the first years of the pandemic, with single-family homes surging to more than 1.1 million in 2021, according to the U.S. census, before dropping back again when mortgage rates shot up. Builders have been able to buy down mortgage rates to keep sales higher, but as of this May, they are building at an annualized pace of 992,000.

Resale listings improved slightly this spring, as mortgage rates fell back slightly, and by June, active listings were 16.5% higher than they were the year before, according to Redfin. Some of that increased supply, however, was due to listings sitting on the market longer.

“The share of homes sitting on the market for at least one month has been increasing year over year since March, when growth in new listings accelerated, but demand from buyers remained tepid, as it has been since mortgage rates started rising in 2022,” according to a Redfin report.

A home available for sale is shown in Austin, Texas, on May 22, 2024.

Brandon Bell | Getty Images

Growth at the low end

On the resale market, the supply is lowest in the $100,000 to $500,000 price tier, according to the National Association of Realtors. That is where the bulk of today’s buyers are. Higher mortgage rates have them seeking cheaper homes.

Interestingly, however, while supply is increasing across all price tiers, it is increasing most in that same lower-end price tier, meaning it is simply not enough. As fast as the homes are coming on the market, they are going under contract.

For example, there is just a 2.7-month supply of homes for sale between $100,000 and $250,000, but supply is up 19% from a year ago. Meanwhile, there is a 4.2-month supply of homes priced upward of $1 million, but supply is up just 5% from a year ago.

This explains why home prices remain stubbornly high, even with improving supply. Prices in May, the latest reading, were 4.9% higher than May 2023, according to CoreLogic. The gains have begun to shrink slightly, but not everywhere.

“Persistently stronger home price gains this spring continue in markets where inventory is well below pre-pandemic levels, such as those in the Northeast,” said Selma Hepp, chief economist for CoreLogic.

“Also, markets that are relatively more affordable, such as those in the Midwest, have seen healthy price growth this spring.”

Hepp notes that Florida and Texas, which are seeing comparatively larger growth in the supply of homes for sale, are now seeing prices below where they were a year ago.

While analysts have expected prices to ease and mortgage rates to come down in the second half of this year, it remains to be seen if rates will actually come down and if the supply-demand imbalance will allow prices to cool. If mortgage rates do come down, demand will surely surge, putting even more pressure on supply and keeping prices elevated.

“Yes, inventory is rising and will continue to rise, particularly as the mortgage rate lock-in effect diminishes in the quarters ahead. But current inventory levels continue to support, on a national basis, new construction and some price growth,” Dietz added.

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Upgrades for Apple and Shopify; downgrade for Doximity By Investing.com

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Investing.com — Here is your Pro Recap of the top takeaways from Wall Street analysts for the past week.

InvestingPro subscribers always get first dibs on market-moving AI analyst comments. Upgrade today!

Apple

What happened? On Monday, Loop Capital upgraded Apple (NASDAQ:) to Buy with a $300 price target.

What’s the full story? Loop Capital has upgraded Apple based on insights from their Supply Chain Analyst John Donovan. Donovan highlights Apple’s potential to become the leading platform for Generative AI in the consumer market over the next few years. This potential is compared to Apple’s past transformative impacts with the iPhone in social media and the iPod in digital content consumption, both of which significantly boosted the company’s stock performance.

The brokerage’s analysis underscores Gen AI as a potential major growth driver for Apple. They have a price target of $300, which is 33x their projected $9.00 EPS for CY2026. This valuation is positioned at the higher end of Apple’s post-Covid P/E range of 20x to 35x. While there has been speculation about Apple’s potential benefits from Gen AI, Loop’s upgrade is specifically based on Donovan’s detailed assessment.

Despite their optimistic outlook, Loop maintains a cautious approach, noting that the full impact of Gen AI on Apple’s financial metrics will unfold gradually. They emphasize that the upgrade reflects confidence in Apple’s ability to leverage Gen AI to drive future growth, similar to the strategic advancements made with the iPhone and iPod in their respective technological eras.

Buy at Loop means “The stock is expected to trade higher on an absolute basis or outperform relative to the market or its peer stocks over the next 12 months.”

How did the stock react? Apple opened the regular session at $236.20 and closed at $234.40, a gain of 1.67% from the prior day’s regular close.

Shopify

What happened? On Tuesday, BofA Securities upgraded Shopify (NYSE:) to Buy with a $82 price target.

What’s the full story? BofA believes that the company, under the new CFO Jeff Hoffmeister, has turned a corner on balanced growth and margin following years of declining margin. The research team forecasts solid revenue growth and Free Cash Flow conversion from here, driven by solid high single-digit baseline eCommerce growth, steady share gains and disciplined expense spending.

BofA points out that revenue growth and disciplined spending are leading to healthy margin expansion going forward. They forecast a 17.4% operating margin for FY 2026, up from 14.3% in FY 2024.

The research team also notes that normalizing product mix-shift from lower-margin payments should result in a stable gross margin after years of decline (-650 basis points since FY 2017). Shopify is maintaining a ‘disciplined, limited headcount growth’ trajectory as a core tenet for operating leverage.

In an upside scenario, BofA projects FY 2030 revenue and FCF of $29.4 billion (+22% CAGR) and $8 billion (+33% CAGR), respectively.

Buy at BofA means “Buy stocks are expected to have a total return of at least 10% and are the most attractive stocks in the coverage cluster.”

How did the stock react? Shopify opened the regular session at $67.28 and closed at $69.75, a gain of 8.63% from the prior day’s regular close.

1-800-Flowers.com

What happened? On Wednesday, DA Davidson downgraded 1-800 FLOWERS.COM Inc (NASDAQ:) to Underperform with a $8 price target.

What’s the full story? DA Davidson has analyzed FLWS’ performance, noting that the company, which operates in the late-cycle discretionary consumer sector, has experienced year-over-year sales declines since the pandemic ended. Sales have decreased in every quarter since F3Q22, with the declines worsening from low- to mid-single digits to -8% to -18% Y/Y over the past five quarters. Before the pandemic, when the University of Michigan consumer sentiment index was in the 90s and above 100, FLWS reported several quarters of organic sales growth between +8% and +10% Y/Y. Currently, the Michigan index is in the 60s-70s, having recovered from a low of 50 in June 2022.

The brokerage believes that consumer sentiment needs to consistently exceed 80 for FLWS to return to low-single-digit sales growth. Bloomberg debit card data, which is 94% correlated to sales, indicates a worsening trend, with a -15% Y/Y decline in F4Q24 compared to -13% in F3Q24. DA Davidson suggests that the consensus estimate of -6% Y/Y sales for F4Q24 might be too optimistic, potentially leading to a miss. They also anticipate that FLWS could issue FY25 guidance below market expectations due to ongoing recession-level consumer sentiment, weak everyday gifting, and potential cost inflation.

As a result, DA Davidson has lowered its sales and EBITDA estimates for FLWS to below consensus levels. The brokerage has also reduced its target multiple from 5.5x to 5.0x and its price target from $9 to $8, based on a 5.0x CY25E EBITDA of $106M (down from $109M).

Underperform at DA Davidson means “Expected to produce a total return of -15% to +15% on a risk adjusted basis over the next 12-18 months.”

How did the stock react? 1-800-Flowers.com opened the regular session at $10.40 and closed at $10.01, a decline of 9% from the prior day’s regular close.

Doximity Inc.

What happened? On Thursday, Wells Fargo downgraded Doximity Inc (NYSE:) to Underweight with a $19 price target

What’s the full story? Wells Fargo acknowledges that while Doximity has an appealing financial profile with consistent Free Cash Flow margins of over 35%, their biopharma survey indicates a slowdown in growth. This is expected to continue driving a downward rerating in the stock. The research team’s survey suggests that market share gains may be plateauing due to several factors. These include a shrinking percentage of clients reporting digital ad budget growth, a client wallet mix towards Doximity that is approaching a plateau, and the fact that bundling products doesn’t always translate into more same-store sales.

Additionally, a large new account/brand in FY25 is positively skewing growth dynamics, likely creating tough comparisons for FY26. Some clients have also pulled back spend, and some competitors are capturing market share.

Furthermore, Wells Fargo points out that brand lifecycles could increasingly become a hurdle to Doximity’s growth prospects. Surveyed clients reported less desire to rely on Doximity to advertise more mature brands, reflecting the research team’s channel checks. This suggests that the net revenue retention rate could encounter more pressure over time as brands mature, which in turn may lead to declining ad spend with Doximity.

Underweight at Wells Fargo means “Total return on stock expected to lag the Overweight- and Equal Weight-rated stocks within the analyst’s coverage universe over the next 12 months.”

How did the stock react? Doximity opened the regular session at $27.03 and closed at $27.59 , a decline of 4.83% from the prior day’s regular close.

Owens & Minor

What happened? On Friday, Citi upgraded Owens & Minor Inc (NYSE:) to Buy with a $19 price target.

What’s the full story? The bank believes the 40% sell-off since the first-quarter earnings report has been excessively harsh. OMI has demonstrated strong momentum in its core P&HS business, with the de-stocking of PPE seemingly concluded. In the long term, Citi views Chinese tariffs as a potential advantage for OMI’s products manufactured in the Americas. Despite recent headlines concerning GLP-1, the bank notes that PD (pharmacy distribution) continues to grow above market expectations, a trend they anticipate will persist. Citi sees minimal risk to the FY24 numbers, reinforcing their positive outlook.

The new price target of $19 reflects a 9.3x FY25 P/E multiple and a 6.0x FY25 adjusted EBITDA, which is significantly lower than OMI’s peers and its historical valuation. This adjustment underscores Citi’s belief that OMI is undervalued and presents a compelling opportunity for investors with a higher risk appetite. The bank’s analysis suggests that the recent market reaction has been overly punitive, and they expect OMI to benefit from both its current business momentum and favorable long-term factors.

Buy at Citi means “Buy (1) ETR of 15% or more or 25% or more for High risk stocks.”

How did the stock react? Owens & Minor opened the regular session at $14.75 and closed at $14.82, a gain of 1.44% from the prior day’s regular close.





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The retro charm of ‘getting your colours done’

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“Oh, we left the four seasons behind somewhere towards the end of the last century,” Cliff Bashforth, managing director of the colour and image consultancy company Colour Me Beautiful, tells me. “Now, we have a palette of 24 tones, and it’s all about are you light or deep, warm or cool, clear or soft. We don’t tell people what colours to wear any more, we show them how to wear colour.”

“Getting your colours done” — common shorthand for the colour analysis service that famously assigned everyone a season — is as synonymous with the 1980s as leg warmers and leotards. It was transformational for a generation of women. I remember how excited my mother was to have been anointed “spring”, embracing a wardrobe of apricot and peach for the next three decades; my half-sister had hers “done” in the early 1990s, and has been happily wedded to her winter palette ever since, favouring silver over gold jewellery and not being afraid of lilac. “My aunt had it done,” a friend told me. “And she still only wears turquoise.”

I had presumed that the phenomenon of having your colours done died out along with leg warmers. But recently, after hearing that it has been trending on TikTok (#coloranalysis has been tagged more than 278,000 times), where various filters allow you to DIY your own colours, I discovered that it’s also having a moment IRL. On a weekend away with a close friend, I couldn’t put my finger on why she was looking quite so good. “I’ve had my colours done,” she admitted sheepishly, adding, “I know, I know,” before I could say anything about time-travelling to 1984. “I didn’t know you still could!” I replied. 

Carole Jackson’s ‘Colour Me Beautiful’ bestseller came out in 1980 . . .
Rebecca and Angi are seen in a desk mirror, with coloured swatches on Rebecca’s shoulder
. . . and many stick for life with the colours chosen in their consultation © Greg Funnell

She confided that she had visited a woman in north London who had been a colour consultant for many years and prescribed my friend warm autumnal shades, which she instantly espoused, all but doing away with any clothes that were not rust, olive, burnt orange or mustard. Along with a pop of her “wow” colour — a soft red for lipstick and earrings — it all hung together so nicely that I lost no time in signing up for a consultation myself. This is, of course, just how it took off over 40 years ago — as a word-of-mouth hit. 

Colour Me Beautiful, or Color Me Beautiful as it began, has been going strong ever since American founder Carole Jackson’s bestseller of the same name came out in 1980 and remained on the New York Times top 500 list for many years. It took off predominantly with women of a certain age in the US, leading many of them to train to become a “colour consultant” themselves — a popular late career option for women in possession of a garage or spare room, as well as a good dose of get up and go. 

“It was in a time when women were looking for a part-time job that had some glamour attached to it that they could also do from home,” says Mary Spillane, the image and communications consultant who brought Color Me Beautiful — the book and the business — to the UK in 1983, shortly after moving here. 

“No one knew me in this country, so I thought I’d give it a go. It became a runaway success. I set it up in 35 countries.” A host of rival colour consultancy companies sprang up — some of which still adhere to the original “four seasons” doctrine today. 

Spillane is tickled to see how younger generations are embracing it as a retro trend. “I’ve seen it on TikTok and Instagram and it has really cracked me up,” she says. Her take is that eco-conscious Gen Z-ers spurning fast fashion are wanting to shop wisely and invest in pieces that suit them and will last. TikTokers are either videoing professional colour consultations, engendering long comment threads — “I def like the cool WAY better”; “I vote warm 100% 😬😬😬” — or attempting to work it out for themselves using special rainbow filters.

In Spillane’s view, there is no substitute for an in-person consultation. “None of us are objective and women tend to be more negative and have hang-ups . . . we have all these stupid things that we have closed off to ourselves. It’s great to have someone look at you fresh, and say ‘Come on, give it a go.’”

Two hands hold swatches with various colours
A range of swatches help to fins the right shades © Greg Funnell

In response to this surprise uptick, Colour Me Beautiful last year launched an “Express Colour” service lasting about 40 minutes (costing from £40) instead of 90 minutes (from £160), for “attention-shy young people”, says Bashforth. He trained as a consultant in 1988 and has worked for the company ever since, buying it out in 2016. Thousands have been trained over the decades, with a current stronghold of 800-plus consultants across the world. It is a particular hit in South Africa, Sweden and Switzerland — but the French, apparently, aren’t so keen. The demographic has evolved and it is no longer the preserve of that gloriously ’80s cohort “ladies who lunch”, but a potentially lucrative part-time option for those with children at home, or who are simply wanting to diversify. Is it still mainly women who sign up for training, I ask Bashforth. “Ninety-nine to one. I am the exception,” he laughs. 

It costs £2,000 (plus VAT) for 24 hour hours’ online training over six days, but, once you’ve bought your swatches of colour, “you can literally start the next day”. Some have stuck at it for 35 years, but others, such as Spillane, “ran out of puff”. The average tenure is — impressively — somewhere around the 15-year mark, according to Bashforth. 

Angi Jones, who operates out of her bright ground-floor flat in London’s Muswell Hill, has been with Colour Me Beautiful for nearly 20 years. Her living room is set up with a table piled high with neatly pressed samples of assorted coloured fabrics, and a chair placed in front of a mirror. Jones is stylish and smiley with blonde hair, wearing neutrals and a splash of apple green — “as bright as I go”, she tells me, “given my colouring”. She eyes my white T-shirt and pale pink cardigan, but refrains from comment.

I sit down in the chair and Jones covers my shoulders with a sequence of “pelmets” that are divided into colourful segments like Trivial Pursuit wedges. As I look in the mirror, guided by Jones, the pelmets immediately reveal whether I am warm or cool, light or deep, clear or soft (muted is the term preferred by men, apparently). It is clear by how washed-out I look against certain pale tones that I am warm, deep and clear. Jones, now totally in her stride, begins to drape the swatches from the various piles of colour across me. “My mother told me I must never wear beige,” I venture, when she holds up the next set — neutrals. “Raincoats, handbags, basics,” replies Jones, “that’s what they are for.” I’m surprised that charcoal is in my remit, and disappointed that bright white is definitely out — though soft white is allowed. FT bisque is in, but my cardigan is a no.

Jones has strong views about the meaning and power of colour. “Red excites people — children like it,” she tells me. “Purple is a learned colour — people think you are more intelligent if you wear purple.” I admit that purple is the one colour I really don’t get on with. “That’s fine!” she says breezily, putting it to one side and pulling out a deep teal. “Ah! Look at that! That really brings out the contrast between your skin and your eyes and hair, which is what we want.” The teal goes into a shortlist pile of possible “wow” colours. 

People tend to smile when they find a colour that really works for them, she says. I grin like mad when she lays a daffodil yellow swatch across my shoulders — mainly because it is one of my favourite colours, and I’m happy I’m allowed to wear it. 

Then we go into colour combinations — the more striking the better, apparently, for my colouring. Mahogany and primrose: Dalai Lama gravitas. Chocolate brown and lapis — “The French do that, it’s very clever” — is smart, pulled together, like posh luggage. Chocolate and periwinkle is more air stewardess, however.  

At the end of the session, Jones assembles my wallet of personalised miniature swatches — small enough to slip into my beige handbag for a shopping trip to town. I feel myself itching to rashly bin my staple white T-shirts and pale jeans in favour of French navy and ivory. Perhaps with a splash of teal. 

Not everyone responds well to being told what they should and shouldn’t wear: one FT journalist recounted how horrified she had been when her husband bought her a colour analysis consultation for her birthday. Others like to rebel, sporting colours they know aren’t in their wallet.

Having rushed out after my consultation and spent a small fortune on a coral jumpsuit and coffee-coloured trousers, a week later I found myself slipping back into my off-duty uniform. In flaunting Angi’s advice, I felt a pang of guilt, but also an illicit thrill.  

Rebecca Rose is the editor of FT Globetrotter

Find out about our latest stories first — follow FT Weekend on Instagram and X, and subscribe to our podcast Life & Art wherever you listen           





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Junk bonds are now in high demand as Wall Street bets on another Trump presidency

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The credit world’s version of the “Trump trade” is beginning to take shape: Buy American high-yield bonds and steer clear of anything inflation-sensitive.

Corporate bond investors around the world have already started positioning to benefit from a potential Donald Trump election victory after an assassination attempt and the Republican National Convention boosted his position in polls. Spreads on US high-yield bonds strengthened compared with their euro counterparts in the past week and junk funds globally saw a surge in inflows.

“US high yield is the trade,” said Al Cattermole, a portfolio manager at Mirabaud Asset Management. “It is more domestic-focused and exposed to US economic activity.”

In a late June interview with Bloomberg Businessweek, Trump said he wants to bring the corporate tax rate down to as low as 15%. That lower expense could improve the creditworthiness of weaker firms. US companies could also benefit from protectionist policies that will see high tariffs slapped on imports if the Republican nominee is victorious.

US junk is attractive to money managers because, when financials are excluded, more than half of top junk-rated borrowers only have domestic revenues, according to a Bloomberg News analysis. That compares with just a fifth in the high-grade space. The data excludes companies that don’t publicly disclose the information. 

Domestic manufacturers could also benefit from tariffs and looser regulation.

“We have been adding US industrials that would benefit from a pro-business stance from a new government,” said Catherine Braganza, senior high yield portfolio manager at Insight Investment. “Companies that benefit from industrial manufacturing, in particular, those that deal with spare parts” are attractive, she said.

Yield Curve

Some fund managers are instead focusing on the shape of the yield curve, particularly as corporate bond spreads seem to have little room to fall further after nearing their tightest level in more than two years.

“We have reduced duration by having shorter-dated bonds, using futures and also using steepener trades,” said Gabriele Foa, a portfolio manager at Algebris Investments’ global credit team, referring to wagers that benefit when the gap between short- and long-dated yields widens.

Even though this spread has widened this year, it remains far below levels seen before major central banks started raising interest rates to tackle runaway inflation. At the moment, bondholders receive a measly 30 basis points in extra yield by holding seven- to 10-year global corporate bonds instead of shorter-term company notes, according to Bloomberg indexes, compared with 110 just before Trump left office in 2021.

his gives the curve further room to steepen, particularly if the former President’s policies — which are expected to be inflationary and lead to higher national debt — are matched by interest-rate cuts by the Federal Reserve. 

To be sure, not all money managers are switching to a Trump portfolio just yet. It’s not yet a sure thing that he will win, and even if he does, it’s not completely clear what he will do in office.   

“It’s a bit too early to adjust your portfolio based on ‘what ifs’ when Donald Trump is in office,” said Joost de Graaf, co-head of the credit team at Van Lanschot Kempen Investment Management. “We still expect to see a bit of summer grind tighter in spreads.”

If Trump does win, markets sensitive to higher interest rates, inflation and tariffs are expected to be more unpredictable.

“Higher for longer is bad for emerging markets, and you’ll get weaker economic growth due to tariffs,” said Mirabaud’s Cattermole. “We would expect that European high yield underperforms in the next nine months.”

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