Axios Markets: Why the real estate boom could keep going for years

1 big thing: Why the real estate boom could keep going for years | Wednesday, September 30, 2020

View in browser   Presented By Global X ETFs   Axios Markets By Dion Rabouin ·Sep 30, 2020 Good morning! Was this email forwarded to you? Sign up here. (Today's Smart Brevity count: 1,238 words, <5 minutes.) 🎙 "Opportunity is missed by most people because it is dressed in overalls and looks like work." - See who said it and why it matters at the bottom.     1 big thing: Why the real estate boom could keep going for years Illustration: Aïda Amer/Axios   Even after reaching all-time high average prices and sales numbers not seen since the height of the 2000s boom, the housing market still has lots of room to run, experts say. What's happening: There were fears in late 2019 and early this year that price levels had outpaced income growth and become unsustainable — but record-low mortgage rates and promises by the Fed to keep U.S. interest rates at zero through at least 2023 have lit a new fire under the market. Where it stands: Home prices rose 4.8% nationally in July, according to the latest Case-Shiller Home Price Index. Existing home prices hit a record high average of $310,600, up 11.4% year over year, and the overall U.S. home price average was a record $319,178 in August, a 13% gain over 2019. New homes sales broke the 1 million mark for the first time since 2006 last month, rising 43.2% from last year and up 4.8% from July. "Weekly home price data show that sellers are raising asking prices at a double-digit pace, and surprisingly, eager buyers are willing to give them what they're looking for," says Danielle Hale, chief economist for Realtor.com. The big picture: It's not just low rates. There are a few big factors that could buoy the housing market for years to come, says Jonathan Woloshin, head of U.S. real estate at UBS Global Wealth Management. Older millennials, a historically large generation, are reaching their late 30s — an important marker, as there has been a persistent 20-percentage point gap between the percentage of homeowners under 35 and those 35–44. Homebuilders have been slow to erect new housing since the global financial crisis, limiting supply. And yes, "COVID put some extra juice in the market," Woloshin tells Axios. But what's really driving things is a new "migration" out of major population hubs like New York and San Francisco and into lower-cost suburban areas and smaller, more affordable cities like Phoenix, Salt Lake City, Las Vegas and Boise, he says. The bottom line: Even though prices have risen, the record-low mortgage rates have brought down the monthly bill new buyers will see in many cases, Tendayi Kapfidze, chief economist at LendingTree, tells Axios. And that could fall even further if demand starts to wane or as mortgage servicers ramp up hiring, bringing down the spread between mortgage rates and U.S. interest rates, he says. "Is this sustainable? I think as long as interest rates remain low you can continue to capitalize on those low interest rates at these high prices."     Bonus chart: Lower rates, less risk Data: St. Louis Federal Reserve; Chart: Axios Visuals Perhaps more important than sustained demand, the mortgage financing landscape now is "very different from 2006," Realtor.com's Hale tells Axios. By the numbers: She cites metrics like the Mortgage Bankers Association's mortgage credit availability index, which found credit supply at its lowest level since March 2014 in August, and well below where it stood in 2006, at "over 800." "Regulatory and legislative changes made after the last recession ensure that mortgages are more strictly underwritten and lower appetite for risk means lenders have tightened lending criteria compared to last year." Similar metrics like the Urban League's housing credit availability index also show much lower risk being taken by lenders. But, but, but: There is a downside. Tightening credit requirements also mean that many potential homeowners could be locked out of the market. A June report from the Urban League prepared for the New York Fed noted that while the housing market seems strong, "Beneath the surface, credit has tightened. When credit availability becomes an issue, minority borrowers tend to be disproportionately affected."     2. Catch up quick Correspondent Dana Bash aptly described the first presidential debate as a "shit show" live on CNN shortly after the event concluded. (CNN) Men and women reported drinking alcohol more frequently and in higher quantities since last year, with heavy drinking among women spiking 41%. (JAMA) GM says it has not finalized a $2 billion deal with Nikola scheduled to close before Wednesday due to allegations of fraud and sexual abuse against Nikola's founder and former executive chairman. (CNBC) Seven major airlines will accept taxpayer loans, the Treasury Department announced: Alaska Airlines, American, Frontier, JetBlue, Hawaiian, SkyWest and United. (Axios)     A message from Global X ETFs Explore how technology is making education more accessible     Before Zoom became a household name, growth in online learning was spurred by benefits of cost, convenience and the potential to expand educational access. Recent events may prove an accelerant to the trend. Explore what's next in education — and why investors may want to take notice.     3. Conference Board's consumer confidence reading may be an outlier Data: Investing.com; Chart: Axios Visuals The Conference Board's consumer confidence index rose to 101.8 in September from 86.3 in August after two straight monthly declines. Why it matters: The reading was the largest increase in 17 years, the best reading since March and was nearly 12 points above consensus expectations. One level deeper: Unlike in previous months when consumers felt confident about the future but nervous about their present situation, all components of the index increased markedly. Consumers' assessment of current business and labor market conditions rose to 98.5 from 85.8 in August. The index for consumers' short-term outlook for income, business and labor market conditions increased to 104.0 from 86.6 in August. Yes, but: The reading diverged sharply from the University of Michigan's consumer sentiment index, which showed confidence largely in line with recent months. What we're hearing: The vast difference between the two surveys "leaves ongoing uncertainty over the path of consumer spending at a time of rising COVID-19 cases and growing election uncertainty," says ING chief international economist James Knightley. The Conference Board's survey cut off responses Sept. 18 while the latest Michigan survey was released on Sept. 25 and will update on Friday. The Conference Board polls up to 10 times the number of people, Knightley notes. "The other major difference is the perception that the Conference Board measure puts more emphasis on the state of the jobs market while the University of Michigan puts more weight on personal finances and overall business conditions." Don't sleep: A report from research firm Morning Consult, which surveys respondents daily and has readings through Tuesday, "shows that the momentum from early September has subdued, as growth slowed in the second half of the month." Morning Consult's reading was 91.8 as of Sept. 29, up 2.2% from Aug. 31, after seeing a 5.2% peak growth rate on Sept. 10.     4. Real-time data show economy's rebound slowing but still going Data: New York Fed; Chart: Axios Visuals The New York Fed's index of real-time data reversed again in the last week, with data continuing to show a slow but recovering economy that is having trouble returning to its pre-pandemic strength. What happened: The index was unexpectedly weaker given solid data on U.S. retail sales and the massive outperformance of the Conference Board's consumer confidence index. The index had ticked up to -3.84% last week and the latest decline for the week of Sept. 26 comes "in spite of increases in retail sales, steel production, and consumer confidence," the index's authors say. The index was at -4.5% after its previous update on Thursday. What it is: "The Weekly Economic Index (WEI) is an index of ten daily and weekly indicators of real economic activity, scaled to align with the four-quarter GDP growth rate," per the NY Fed. The big picture: Other real-time data back the stall out in the New York Fed's data. TD Securities analysts note that the daily Homebase employment series now shows a small decline in not-seasonally-adjusted private payrolls in September and points to a decline in jobs for October. The OpenTable restaurant series "has been volatile, but it appears to be trending up slowly," they note. The analysts expect a positive jobs number in the September jobs report, but only 400,000 jobs added, which would be less than half the consensus expectation of 850,000, according to FactSet. A similar measure of real-time data from Jefferies rose in the last week, but remains below its September peak, as the month-over-month growth rate "has averaged at just 1.5% over the past month, the slowest pace since the beginning of the recovery." Though analysts caution the September slowdown is likely based on seasonal factors, "i.e. not yet a concern."     A message from Global X ETFs Exploring growth opportunities in digital education     Before Zoom became a household name, growth in online learning was spurred by benefits of cost, convenience and the potential to expand educational access. Recent events may prove an accelerant to the trend. Explore what's next in education — and why investors may want to take notice.   Thanks for reading! Quote: "Opportunity is missed by most people because it is dressed in overalls and looks like work." Why it matters: On Sept. 30, 1882, inventor Thomas Edison's first commercial hydroelectric power plant began operation. The plant was created after men working for Western Edison Light Company of Chicago learned about Edison's plan for a steam-driven electric power plant in New York City. After learning about Edison's advances in electric light technology and electric generators, a group of investors worked to create one of the first hydroelectric central stations in the world. Go deeper: In 1931, the year he died, Edison is said to have told friends Henry Ford and Harvey Firestone: "We are like tenant farmers chopping down the fence around our house for fuel when we should be using nature's inexhaustible sources of energy — sun, wind and tide." "I'd put my money on the sun and solar energy. What a source of power! I hope we don't have to wait until oil and coal run out before we tackle that."   Axios thanks our partners for supporting our newsletters. Sponsorship has no influence on editorial content. Axios, 3100 Clarendon B‌lvd, Suite 1300, Arlington VA 22201   You received this email because you signed up for newsletters from Axios. Change your preferences or unsubscribe here.   Was this email forwarded to you? Sign up now to get Axios in your inbox.   Follow Axios on social media: