The housing market faces an inflection point. An unexpectedly quick rise in interest rates, rising home prices, and escalating material costs have significantly decreased housing affordability conditions, particularly in the crucial entry-level market. Builder confidence in the market for newly-built single-family homes moved two points lower to 77 in April, according to the NAHB. Builders report sales traffic and current sales conditions have declined to their lowest points since last summer.
The housing market is still hot but buyers are shrinking, says Lawrence Yun. Inevitably, the buyer pool will steadily shrink later in the year because of the cost burden. Overall home sales might decline about 6% this year. Meanwhile, home prices will still rise. By year-end, it might have a single-digit percentage gain of around 5% in December versus 12 months ago. At the same time, builders are building more which means we will have increased supply. Source(39:30)
Natural-gas prices continue to climb toward a 14-year high. A late-season blast of cold air in the U.S. and weak storage have been cited as some of the reasons behind a recent surge in natural-gas prices. The rise behind the highest levels for natural gas since 2008 has much to do with low inventories. Meanwhile, oil prices hold steady. Read more here.
A small business survey reveals ample signs of stagflation. The March survey of small business owners conducted by the NFIB discovered a slew of stagflationary trends. The survey found that a record 72 percent of small business owners raised their selling prices, while half of them plan to continue to hike prices. Price increases were most common in wholesale, construction, agriculture, and retail sales.
U.S. venture capital is pouring into Canadian enterprise tech startups. Canadian information-technology startups last year raised a record $13.6 billion in venture capital, more than double a previous high set in 2019. Many are being drawn north by thriving tech hubs in places like Toronto and Vancouver, where in recent years Big Tech companies like Google, Microsoft, and Intel have expanded into.
Homeowner groups seek to stop investors from buying houses to rent. Homeowner associations are blocking companies from buying single-family homes, rewriting homeownership rulebooks to thwart investor purchases of suburban housing. Most associations require a large majority of homeowners to pass restrictions. Some housing analysts say that blocking investors from neighborhoods could end up hurting renters.
Tech startups face widespread stock sell-offs. Market volatility is spooking investors, creating a chasm between prices sought by buyers and sellers and prompting a steep sell-off, and start-ups are beginning to feel the sting. For reference, the tech-heavy Nasdaq Composite index is down roughly 15% so far this year, while Cathie Wood's slavishly tech-devoted ARK Innovation ETF is down an eye-watering 38% so far in 2022.
WHAT TO WATCH
Regulating Meta, Amazon could impact startups. One of the proposed laws prevents killer acquisitions. It's the idea that a large firm could acquire a small startup to basically stop a potential competitor in its tracks. So instead of letting that small rival grow into a real threat, they acquire that company. Most of the time, startups do want to get acquired to be part of a bigger company. Source(17:39)
Goldman says recession risks are growing, but it’s too early to worry. At the end of March, the rate of the 2-year note was higher than the 10-year. This inversion is seen by some as a sign of a forthcoming recession. Currently, there is a market-implied recession probability of 20% to 30%. The bank remains overweight equities in its asset allocation but said it is focused on managing risks with tail risk hedges. Read more here.
Rivian CEO warns of electric-vehicle battery shortage on the horizon. Much of the battery supply chain isn’t built, challenging an industry aiming to sell tens of millions of EVs in coming years. CEO RJ Scaringe said building enough batteries will be among the biggest hurdles for the industry. The shortages will occur everywhere from the mining of raw materials to processing them, to building the battery cells themselves. Read more here.
The Twitter-Elon saga won't conclude immediately. If Elon is serious, this won’t be happening fast because there is no proof of financing and there needs to be an actual commitment letter & draft. Just like when you get a mortgage for a home you still need all the documents and proof of downpayment, income, and how the transaction will be completed. Therefore, the conclusion is to price out the medium-term option chain (6-9 months) and you can structure something where you buy puts/calls 6 months out. Read more here.