Month: July 2021

U.S. New Home Sales Unexpectedly Decline in June

Weakness in the new home market continues to extend, Sales of new single-family homes declined 6.6% (-19.4% y/y) during June to 676,000 (SAAR) from 724,000 in May, revised from 769,000. It was the lowest level of sales since April 2020. April sales also were revised downward to 785,000 from 817,000 estimated last month. The Action Economics Forecast Survey expected 800,000 sales in June.

Sales in the Northeast declined 27.9% (-40.4% y/y) to 31,000 units after a 2.4% May increase to 43,000. It also was the lowest level of sales since April of last year. Also declining were sales in the South which were off 7.8% (-24.8% y/y) to 367,000, down for the third straight month. Sales in the West weakened 5.1% (-12.7% y/y) to 186,000 following two months of firm increase. Showing 5.7% improvement (7.0% y/y) to 92,000 were sales in the Midwest. Nevertheless, sales in the middle of the country were off 25.8% since January.

The median price of a new home declined 5.0% (+6.1% y/y) to $361,800, following a 0.7% May gain to a record $380,700. The average sales price of a new home fell 1.2% (+12.2% y/y) to $428,700, down from the record $437,000 in April. These prices are not seasonally adjusted.

The supply of new homes for sale rose to 6.3 months in June, up from a low of 3.5 months in September and October of last year, and the most since April 2020. The median number of months a new home stayed on the market was 3.5, following 4.4 months in May. The figure was down from the nine-year high of 5.1 months in March.

Real demand weak or builders “limiting sales” as many recently commented? If the latter, sales should pick up since inventory is back to normal. Permits have declined since their January peak but June permits remain on trend. Homes under construction are still rising.

In June, 76.6% of the new homes sold were either still under construction or not yet started. This is considerably higher than the 65% level where the metric trended before the pandemic.

Data: Census Bureau; Chart: Axios Visuals

In recent months, many homebuilders have resorted to intentionally slowing the pace of new sales to allow production to catch up,” Ivy Zelman, CEO of housing research firm Zelman & Associates, tells Axios.

Speculative homes are being started and will not be released for sale until later on in the construction process given the inflated cost risk, or in some cases upon completion. This should change the supply-demand landscape, as more inventory gets released for sale.

• More Supply Is on the Way

This is from John Burns Real Estate Consulting:

Over the next 24 months, expect home construction to boom as the number of communities will start growing again after a significant decline that has lasted more than 21 months now. Both for-sale and for-rent home builders have been on a land buying bonanza since June of 2020. The publicly traded home builders have increased their land holdings by 23% YOY through 1Q 2021. Our market feasibility consulting business for private builders has boomed as well. Builders have also paid for 30% more single-family permits in the last twelve months than the prior twelve months.

Compare that with our quarterly update for our research subscribers which shows that public builder community counts fell -17% YOY in 2Q21, the seventh consecutive quarterly decline. Clearly, the trend shown below is going to reverse.

Publicly traded builders also provide great intel into what to expect, which is why we summarize their calls for our clients as well. Here is what they are saying:

Although sales have slowed a bit recently, we just closed our quarterly Residential Land Broker and Developer Survey and confirmed that the land market remains white hot.

Additionally, most of the recent land buys will consist of communities that are larger in size as disclosed by Lennar (LEN), Meritage Homes (MTH), LGI Homes (LGIH), Toll Brothers (TOL), and Green Brick Partners (GRBK), and observed by our consulting team.

The growth in more affordable markets has also boomed.

All of the above represents reasons why we believe supply is coming. (…)

• Lumber demand plummets as do-it-yourself boom ends

(…) cash prices have plummeted 70 per cent from the record high of US$1,630 for 1,000 board feet in mid-May.

For cash prices so far, softening demand from wood buyers has largely offset the impact of supply disruptions in July from B.C. wildfires. (…)

Whatever the new “floor price” turns out to be, the consensus is that the cash price for Western SPF will likely be at least US$430 for 1,000 board feet, or more than double the decade-low bottom of US$210 in 2011 and far higher than US$130 in 2009 during the recession.

CHINESE ECONOMY GROWS FAST IN JULY

We will get China’s PMI next week. Here’s China’s Sales Managers Survey:

Rapid growth has resumed in China in virtually all business sectors.

The Indexes uniformly reported on very high levels of Business Confidence (up at a 75 month high);  Staffing (a 78 month high); Profits (an all time high), and Market and Sales Growth (almost 4 year highs).

Although Price rises continue at abnormal rates, signs of an abatement in the rate of growth appeared in July to the relief of many.

Overall the July survey provides considerable evidence that the Chinese economy is likely to remain the engine of global growth for some time to come. Whether Government efforts to cool the pace of growth achieve their aim should become more evident in coming months.

But for now the growth engine is performing very well indeed….

China All-Sector: Headline Sales Managers Index

Biden Administration Moves to Tilt Pay, Power Toward Workers President Biden is advancing a series of regulatory changes aimed at increasing workers’ pay and gaining them other benefits, moves that opponents say could burden businesses amid an uneven economic recovery.

(…) These include the agency’s announcement last week that it had begun the process of raising the minimum wage for federal contractors to $15 an hour and ensuring it will continue rising to keep pace with inflation. (…)

Mr. Biden has proposed other policies aimed at tilting the balance of power toward workers from employers, including raising the federal minimum wage for private-sector employees, increasing wages for caregivers and making it easier for workers to organize labor unions. However, those changes would require congressional approval, a difficult undertaking in a narrowly divided Senate.

Regulatory action allows the administration to see part of its agenda implemented without the need for Congress to pass legislation. (…)

Another proposal would limit private-sector employers’ use of the tipped minimum wage, which allows employers to pay less than the federal minimum wage and apply workers’ tips to make up the difference. Under federal law, tipped workers can be paid as little as $2.13 an hour, provided they earn enough in tips to reach the federal minimum. The rule would affect a swath of workers, including many of the 11 million Americans employed at bars and restaurants. (…)

The Labor Department earlier this year also moved to undo two Trump administration rules.

One would have made it easier for businesses to classify gig workers, such as Uber drivers, and others as independent contractors rather than employees entitled to certain benefits and protections. The Trump administration completed that rule in January 2021, and the Biden administration blocked it from going into effect. The Labor Department also said it is seeking to rescind another rule that would have made it more difficult for workers to claim to have two employers simultaneously in cases when they are challenging wages and overtime. That would nullify a rule put in place last year.

Business groups have said the joint-employer rule would have provided regulatory clarity for employers that are franchised brands or use staffing firms. Allowing a worker to be considered an employee of both a local business and an international brand, such as a fast-food chain, could open the door to efforts to unionize the larger corporation, some labor lawyers say. (…)

Big Pharma Quietly Pushes Back on Global Tax Deal Pharma executives, lobbyists and consultants are mobilizing to fight what has become a threat to drug companies’ bottom lines: an agreement to better harmonize corporate taxation around the globe.

(…) The effort comes at the same time the industry is fighting U.S. proposals to cut drug prices. Lawyers and company officials estimate the tax overhaul, if adopted, could cost some of the biggest pharmaceutical companies hundreds of millions of dollars more each year. (…)

“Pharma has done a lot of tax planning and has put a lot of intangibles into tax havens,” said Richard Collier, who teaches international tax law at the University of Oxford and advised on the global tax framework. The bottom line for the industry, he said, is: “The ground has shifted for the worse.”

Drug companies also benefit from government subsidies and other sweeteners to attract jobs and research, some of which could remain out of reach of tax overhauls.

Over the past decade, the world’s 20 largest pharmaceutical companies reported a global effective tax rate of about 17%, compared with about 21% for the world’s 20 biggest tech companies—both lower than rates reported by very large companies in other sectors, excluding China, according to an analysis for The Wall Street Journal by New York University finance professor Aswath Damodaran. (…)

This chart gives the potential tax impact on S&P 500 sector EPS per KKR calculations:

Beijing Gives Tech Investors a Brutal New Tutorial The pain for Chinese internet technology firms will be long-lasting—and the crackdown isn’t over yet

(…) Chinese tech stocks already punished by a widening antitrust and data-security crackdown have lost billions of dollars in market value over the past few days as a new selloff hit almost every single company in the sector. The immediate trigger: new rules that would basically wipe out much of the booming after-school tutoring sector. While tightening regulations have long been on the horizon, the scope and severity of the crackdown still caught investors by surprise. (…)

investors are reassessing regulatory risk for Chinese equities more broadly. Crackdowns like the one on tutoring likely won’t extend to most other sectors, but Beijing has sent a clear message nonetheless. Enormous pain for investors—particularly those of the offshore variety—isn’t a barrier to policy goals. And when such crackdowns unfold, they often go further and faster than nearly anyone initially expects. (…)

The regulatory assault on big tech is far from over. Regulators also issued new guidelines asking food-delivery companies to ensure workers are paid at least the minimum wage. Delivery giant Meituan’s 3690 -17.66% shares have slid 25% in the past couple of days. China’s tech regulator also ordered firms to fix anticompetitive practices like “malicious blocking of website links” on Monday—that likely means platforms like Alibaba’s BABA -7.15% Taobao and Tencent’s TCEHY -10.03% WeChat will need to accept their rivals’ links and payment systems inside their previously walled gardens. (…)

MarketWatch reveals that most of China’s big tech companies are foreign funds and wonders whether these big recent losses will make these funds more risk averse overall.

• China Stock Rout Spreads Amid Fears of Foreign Investor Exodus

A deepening selloff in Chinese stocks spread to the bond and currency markets on Tuesday as unverified rumors swirled that U.S. funds are offloading China and Hong Kong assets.

The speculation, which included talk that the U.S. may restrict investments in China and Hong Kong, triggered a late afternoon bout of selling by traders in Asia who had already been dumping stocks in the crosshairs of Beijing’s sweeping regulatory crackdowns. The Hang Seng Tech Index plunged as much as 10% in Hong Kong, the yuan slid to its weakest since April against the dollar and Chinese bonds sank. (…)

Traders fear the latest crackdown on the nation’s education, food delivery and property sectors could expand to other industries such as health care, as China looks to tighten its grip on Big Tech and reduce the wealth gap. (…)

“In the past, the market was expecting normal regulations on certain sectors, but now it looks like the government can even tolerate killing a whole industry or some leading companies when it’s needed.”

• Remember the China boom/bust in 2015?

The massive boom in Chinese equities started in mid 2014 and ended in one of the biggest crashes ever in 2015. CSI300 fell by some 45% in a few months.

During the first phase of the sell off it was considered a local Chinese stock market bubble imploding. Some 2.5 months later, the SPX decided to care and developed markets puked big as the second phase of the Chinese equity sell off resumed. (…)

Let’s see if local become global again… (The Market Ear)

Refinitiv

• Big fines can change Big Tech, says French competition chief Isabelle De Silva’s comments come as slow pace of antitrust probes frustrates European regulators

Chinese Officials Blame U.S. for Stalemate in High-Level Talks Senior U.S. and Chinese officials sparred over Covid-19, human rights and cybersecurity during a tense exchange Monday in the highest-level meetings between the two countries on Chinese soil since Joe Biden became president.