Saturday, August 22, 2020

Big companies and home values Bubble higher, but everything else is struggling. How does that last?

We keep seeing evidence that the US is having two different economies going on at the same time. For tens of millions of Americans, it's a struggle. 28 million people are still filing unemployment claims each week, and evictions from homes continue to rise and loom. Especially as expanded unemployment checks dwindle in August.
America had an eviction crisis long before this year, and even a stall in evictions does not signal good news for tenants. While evictions are down, other metrics of housing insecurity are up. A recent Census Bureau survey found that an estimated one third of U.S. renters expected to miss their August rent payment.

Most housing advocates say that it’s only a matter of time until evictions follow. By one dire analysis, more than 29 million Americans in 13 million households across the U.S. could face eviction by the end of the year. That’s the projection by the Covid-19 Eviction Defense Project, a Colorado-based group founded in March by economic and legal researchers, based on the census survey data; another analysis of the survey by the global advisory firm Stout puts 12 million at risk of eviction over the next 4 months.

Some tenants are only just beginning to emerge from the relative safety of government protections. The federal eviction moratorium expired on July 25, but property owners that were subject to that law must still give 30 days’ notice before they can file against tenants. The lapse of the federal moratorium leaves millions of renters — who occupy between 28% and 46% of rental units — newly exposed to eviction proceedings. Tenants covered by the federal moratorium, while fewer in number, are more routinely subject to evictions, especially by so-called frequent filers in cities such as Atlanta or Houston.

“The first two weeks of September are particularly worrisome, especially if Congress takes no further action,” says Peter Hepburn, associate professor of sociology at Rutgers University-Newark and research fellow for Eviction Lab, by email. Prospects for another federal eviction ban or bill to boost benefits appear bleak, with the Senate adjourned for recess through Labor Day.
In addition, many consumer spending sectors remain depressed below their pre-COVID levels, particularly food services and trvael-related industries.

But some retail businesses are doing great at the same time.

Since people don't have the desire to go to multiple places at once (if at all), big-box stores allow individuals to take care of their needs at one time. And they're more likely to have an online presence where items can be shipped directly to homes and/or picked up with little need to contact others.

Some of this is a secular thing that was already happening (especially in communities with few choices), but COVID World has likely sped this up, with the extra effort and precautions that individuals need to make leading to needed makin an even tougher situation for small businesses and their customers.

More of these big-box stores are also more likely to be publicly traded on Wall Street, which is another place where money is flowing to these days. While large swaths of America continue to face financial distress, the S&P 500 is setting new records 5 months after a massive crash. Free money from rock-bottom interest rates have led to stocks leaping despite no real overall increase in actual business, as shown by another record high, in the S&P Price-to-sales ratio.

I'll note that each new height in late 2018 and early 2020 was followed by significant market drops.

One other area of our economy that is bubbling higher with low interest rates is housing, which is booming back after a brief COVID-related decline.
Sales of single-family homes, condominiums and co-ops rose 24.7 percent across the U.S. from June to July and 8.7 percent since July 2019. The median sale price of existing homes also rose 8.5 percent from July 2019 to $304,100, according to the NAR, breaching $300,000 for the first time ever.

“The housing market is well past the recovery phase and is now booming with higher home sales compared to the pre-pandemic days,” said NAR chief economist Lawrence Yun.

July marks the second straight month with a record-breaking increase in existing home sales, which rose 20.7 percent in June. Housing prices also rose in 174 of 181 metropolitan statistical areas, or 96 percent of all localized housing markets, according to data released by the NAR last week.
Some of this is likely related to COVID making housing needs very different, because people need to use their home spaces more, and commute times are less of a factor. Some also may now see downsides to being in a densely populated area, as you're in more contact with people (and increasing your susceptibility to the virus), and with nearby bars and restaurants being less safe and/or convenient, that plus of current location is now muted.

But I also have no doubt that it is related to the lower cost of borrowing - shoot, we've refinanced our home and paid off our HELOC in the last month. But this is happening at the same time when millions of Americans can't afford their current living situation, let alone pay more for a new space. Which makes me wonder how long it takes before the induced demand runs out and this bubble starts to burst.

The stock market growth isn't all it's cracked up to be either. Much like we saw in 2018, the records set in the larger company indexes are hiding the fact that a majority of companies are down in the COVID World.

This is not a sustainable situation. And I don't think that the Bubbly stock and home markets are going to get more people to go out while COVID continues to run through our country. So when something makes Wall Street and the home buyers deal with the lousy economic reality that much of the country is still dealing with, it feels like things can fall really fast.

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