Having previously covered the record surge in rents (here and here) which represents a dramatic reversal from last year's rental plunge, overnight Bloomberg did an in-depth look into the rental market, and its findings - which won't come as a surprise to anyone - can be summarized as follows: "soaring prices, competition, desperation" as the bubble facing homebuyers is rapidly spilling over into the rental market.
Unlike previous years where the rental frenzy was focused on some of the largest cities, this time landlords from Tampa, Florida, to Memphis, Tennessee, and Riverside, California, are jacking up rents at record speeds. And similar to home sales, for each listing, multiple people are apply, forcing some renters to check into hotels while they hunt after losing out too many times.
The following quote from Tampa realtor Shannon Dopkins summarizes the prevailing market frenzy: “Any desirable rental is going within hours, just like the desirable sales. One woman passed on a place that was beat up with water damage. Somebody else decided to rent it.”
After a sharp slowdown last year when many young people rode out lockdowns with family, the rental market is now seeing record demand (although that too may reverse again if there is a new round of lockdowns), there has been a just as aggressive reversal in the market, as the number of occupied rental-apartment units jumped by about half a million in the second quarter, the biggest annual increase in data going back to 1993, according to RealPage.
Occupancy last month also hit a new high of 96.9%, which helped rents on newly signed leases to surge 17% in July when compared to what the prior tenant paid, reaching the highest level on record. One look at the chart below and most renters will be praying that the Fed is right that inflation is "transitory."
A key reason for this record, price indiscriminate scramble for rentals is that the for-sale market is even crazier. Since people need to live somewhere, amid soaring prices and even more aggressive bidding wars in the for-sale market, would-be home buyers who end up getting the short stick are being forced back into rentals.
Adding to the concurrent demand, young Americans are also looking for their first apartment are competing with others who delayed plans because of Covid-19. Meanwhile, an army of remote workers and their high paychecks, are moving to lower-cost areas. And small single-family home and condo landlords, tempted by high prices, are cashing out, leaving their tenants desperate for another place.
“The entire housing market is on fire, across the board from homeownership to rental, from high-end to low-end, from coast to coast,” said Mark Zandi, chief economist for Moody’s Analytics. “It’s a basic need but it’s increasingly out of reach.”
Unfortunately for would be renters it gets even worse, as compounding the demand-driven price surge is a sharp drop in available supply thanks to eviction bans: whereas normally 6% of tenants are forced to vacate each year, the current eviction moratorium has meant that there is that much less supply, the result logically being even higher prices.
And then there is Wall Street, which is quietly gobbling up any available rental properties with the sole intent of pushing prices even higher (see "Blackstone Bets $6 Billion on Buying and Renting Homes")
It all adds up to what Mark Zandi, said is the worst shortage of affordable housing since at least the post-World War II period.
To be sure, smelling a revenue bonanza, developers are adding new supply, but it will take months if not years before the new rental properties hit the market. In the meantime, the squeeze will have economic consequences because workers can’t easily move for jobs and will have less to spend on things other than housing.
Soaring rental costs also of course a contributor to the Federal Reserve’s inflation expectations. However, as even Bloomberg now admits, they "may not yet be accurately reflected in some measures." Owners’ equivalent rent of residences, which makes up almost a quarter of the consumer price index, rose just 2.4% in July from a year earlier according tot he Fed.
That figure “lags the reality” because it’s based on a survey of homeowner expectations about what their home would rent for, Zandi said. A figure derived from real-world prices, such as the one compiled from Apartment List, indicates that rents are actually rising at least twice as fast as what the government is representing, and are currently soaring at a roughly record 5% annualized pace in July.
But of course, the government and especially the Fed would be the last to admit the hyperinflation in the rental market: doing so would have forced the Fed to end its QE long, long ago.
And yes, we don't use the term "hyperinflation" lightly: while the rental surge is hitting those who sign new rents the hardest, even people renewing leases are getting sticker shock. Take Carmen Santiago, a dental assistant, who was paying $1,479 a month for a two-bedroom apartment in Tampa, gave notice to her landlord in March after the rent jumped by $300.
The mother of two profiled by Bloomberg, then racked up more than $1,000 on non-refundable application fees that she handed to about 10 landlords, sometimes getting in line without even seeing the properties first. A couple days before her lease expired in June, Santiago took a last-ditch drive. She visited five apartment complexes, all filled. The sixth, a vast complex with 22 buildings, had one unit available.
The two-bedroom cost more than $1,900 a month, including a mandatory cable bill -- more than Santiago would have paid if she renewed her old lease. But in the end she paid, even though she could hardly afford it before it was gone.
“I didn’t know how hard it was to find something,” Santiago said. “Looking back, maybe I should have stayed.”
And as long as people continue to willingly pay the exorbitant rates that landlords demand, the pricing insanity will remain.
Yet nowhere is the pricing surge greater than in the Sun Belt cities that have seen an influx of arrivals from the pandemic amid an exodus from progressive liberal bastions as New York and San Francisco. The Phoenix area had the country’s biggest increases in rents for single-family houses in June, with an almost 17% surge from a year earlier, according to data released this week from Corelogic. It was followed by Las Vegas, with a 12.9% gain; Tucson, Arizona, at 12.5%; and Miami, up 12.4%.
As noted above, the surge in small cities marks a reversal from the pre-pandemic norm of tight housing in denser, pricier cities -- places such as New York, Boston and San Francisco, which saw office workers flee during lockdowns. Those areas still have an overhang of inventory of high-end apartments aimed at white-collar professionals.
Still, demand is picking up, and since renters now crowding the market have higher salaries, in part, because many of them, in normal times, would be buying homes instead, landlords can hike prices generously.
But whereas smaller cities may represent a bargain to a New Yorker used to paying $3,000 for a 500 square foot shoebox, migration away from the pricey locations is especially painful for locals, whose housing costs are being driven up disproportionately, especially those in more affordable cities and in far-flung suburbs. The average income for new lease signers in July hit a record of $69,252, according to RealPage, which captured data for professionally managed buildings. Year-to-date, their incomes shot up 7.5%.
“It’s always been hard to find a home if you have limited income,” said Jay Parsons, deputy chief economist for RealPage. “What’s crazy now is you can have a relatively high income and still have a hard time.”
That's because the for sale market is an even bigger bubble. Nicolle Crim, vice president of Watson Property Management’s Central Florida division, told Bloomberg she wished she had more to offer. But the for-sale market is so strong that owners are selling for big profits. As a result, Watson now manages about 4,000 single-family home rentals for individual owners, down by a third since the pandemic began, she said. Even relatively sleepy areas such as Springfield, Illinois, three hours from Chicago, are experiencing shortages. Landlord Seth Morrison said his only apartment listing attracted a couple dozen calls before he took it down.
Finally, if one looks at just rental price increases as an indication of metro prestige, then the number one most desired city in the US is Boise, Idaho where according to Apartment List the rental increase since March 2020 is 39% and rising.
US stocks retreat after mixed economic data
Benchmark US indices drifted lower on Thursday September 16 after mixed economic data showed that retails sales rose in August but unemployment benefits…
Benchmark US indices drifted lower on Thursday, September 16, after mixed economic data showed that retails sales rose in August, but unemployment benefits claims also increased last week.
The S&P 500 fell 0.16% to 4,473.75. The Dow Jones shed 0.18% to 34,751.32. The NASDAQ Composite rose 0.13% to 15,181.92, and the small-cap Russell 2000 was down 0.07% to 2,232.91.
Retail sales rose by 0.7% to US$618.7 billion in August after declining 1.8% to US$613.3 billion in the previous month, the Census Bureau reported. Retail sales increased by 15.1% YoY in the month. The data indicated the economic recovery is on track despite Delta virus concerns.
The unemployment benefits claims rose by 20,000 to 332,000 in the week ended Sep 11 after rising 2,000 to 312,000 in the previous week, the Labor Department data revealed. The spike in benefits claims suggested the labor market could still be under stress. Investors also took cues from the Chinese markets, where stocks sharply retreated amid fears of economic slowdown.
Real estate and consumer discretionary stocks were the biggest gainers on the S&P 500 on Thursday. Nine of the 11 index segments stayed in the red. Materials and energy stocks were the bottom movers.
Stocks of DoorDash, Inc. (DASH) rose 5.84% after analysts upgraded the stock to a buy rating. Beyond Meat, Inc. (BYND) stock fell 4.21% in intraday trading after investment banking company Piper Sandler downgraded the stock to an underweight rating.
Also, shares of mobile application developer Asana Inc rose by 8.84% after analysts gave a buy rating to the stock. The company bagged the 9th spot in the Best Workplaces for Women list issued by Great Place to Work and Fortune. It is among the top 10 companies for the second consecutive year.
Lucid Group, Inc. (LCID) stock gained 6.60% after analysts provided a bullish outlook for the stock. In addition, the company said it received the longest-range rating from the US Environmental Protection Agency (EPA) for its Air Dream Edition luxury sedan's 520-mile coverage.
In the consumer discretionary sector, Target Corporation (TGT) rose 1.16%, Dollar General Corporation (DG) gained 2.11%, and The Kraft Heinz Company (KHC) rose 1.26%. Sysco Corporation (SYY) and Archer-Daniels-Midland Company (ADM) advanced 1.00% and 1.01%, respectively.
In material stocks, BHP Group (BHP) declined by 3.86%, Rio Tinto Group (RIO) fell by 4.57%, and Vale S.A. (VALE) fell by 4.91%. Freeport-McMoRan Inc. (FCX) and Southern Copper Corp (SCCO) ticked down 6.38% and 4.67%, respectively.
In energy stocks, Royal Dutch Shell plc (RDS-A) declined 1.21%, PetroChina Company Limited (PTR) declined by 1.37%, and BP plc (BP) fell 1.34%. China Petroleum & Chemical Corporation and Equinor ASA (EQNR) declined 1.34% and 2.19%, respectively.
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Top performers on S&P 500 included ETSY Inc (3.10%), American Airlines Group Inc (2.63%), Align Technology Inc (2.53%), Dexcom Inc (2.44%). On NASDAQ, top performers were Aeye Inc (36.53%), Elite Education Group International Ltd (33.33%), Leap Therapeutics Inc (31.09%), Tuesday Morning Corp (28.32%). On Dow Jones, Salesforce.Com Inc (1.64%), Mcdonald's Corp (0.93%), Home Depot Inc (0.91%), American Express Co (0.80%) were the leaders.
Top laggards on S&P 500 included Freeport-McMoRan Inc (-6.64%), Newmont Corporation (-3.95%), L3harris Technologies Inc (-3.35%), Aptiv PLC (-3.30%). On NASDAQ, Vera Therapeutics Inc (-26.54%), MacroGenics Inc (-23.76%), Silverback Therapeutics Inc (-23.08%), Aerie Pharmaceuticals Inc (-21.40%). On Dow Jones, Goldman Sachs Group Inc (-1.31%), Dow Inc (-1.21%), Merck & Co Inc (-1.15%), Caterpillar Inc (-1.04%) were the laggards.
Top volume movers were Apple Inc (15.32M), Bank of America Corp (13.83M), Ford Motor Co (12.29M), AT&T Inc (8.41M), Lucid Group Inc (13.42M), Leap Therapeutics Inc (13.39M), Vinco Ventures Inc (12.36M), SoFi Technologies Inc (10.40M), Farmmi Inc (9.55M), ContextLogic Inc (8.79M).
Futures & Commodities
Gold futures were down 2.35% to US$1,752.55 per ounce. Silver decreased by 3.86% to US$22.883 per ounce, while copper fell 2.90% to US$4.2787.
Brent oil futures increased by 0.24% to US$75.64 per barrel and WTI crude was down 0.04% to US$72.58.
The 30-year Treasury bond yields was up 0.66% to 1.881, while the 10-year bond yields rose 2.46% to 1.336.
US Dollar Futures Index increased by 0.34% to US$92.847.dollar gold silver commodities markets us dollar nasdaq copper tsx-ngt newmont-corporation newmont corporation
Top Shipper Warns Commodity Freight Rates About “To Go Parabolic”
Top Shipper Warns Commodity Freight Rates About "To Go Parabolic"
Similar to container rates, dry bulk shipping rates are poised to move…
Similar to container rates, dry bulk shipping rates are poised to move higher on limited vessel capacity and robust demand, according to Genco Shipping President and CEO John Wobensmith, who spoke with Bloomberg.
"I think rates can go higher from here," Wobensmith said. "You do get to a point, and you've seen this in containers, where you hit a certain utilization rate, and you start to go parabolic on rates. I think we're getting close to that period."
He said, "fundamentally, you've got demand outstripping supply growth," adding that freight agreements are above $20,000 for 1Q, a level not seen seasonally in a decade.
More than 5 billion tons of commodities, such as coal, steel, and grain, are shipped worldwide in bulk carriers in a given year. A move higher in the Baltic Dry Index (BDI) indicates increasing commodity demand on top shipping lanes.
Lending credit to Wobensmith's argument is BDI on a seasonal basis that shows demand is currently outpacing vessel supply and pressuring rates higher.
He doesn't expect bulk carrier rates to experience a significant reversal until early next year as demand troughs seasonally. "You need very little demand growth to just continue to build off what we've seen this year," he said. "It's more about higher highs and higher lows than anything else."
China's credit impulse needs to turn higher for the commodity boom and bulk carrier rates to stay elevated.
Besides China, passage of a US infrastructure bill could be the fiscal injection that could also spark higher commodity prices, thus continue driving bulk carrier rates higher.
All of this is feeding into inflation that the Federal Reserve convinces everyone it's only "transitory."
Ethereum 2.0 Has What It Takes to Knock Bitcoin off Its Perch
Ethereum (CCC:ETH-USD), the world’s second-largest cryptocurrency, is more than just an internet token. It is the top smart contract and decentralized…
Ethereum (CCC:ETH-USD), the world’s second-largest cryptocurrency, is more than just an internet token. It is the top smart contract and decentralized application network, with more use cases than other digital assets.Source: shutterstock
As it moves to a proof-of-stake model, the network’s capacity will increase substantially and significantly reduce its energy requirements. Therefore, ETH-USD represents the cream of the crop as far as crypto investing is concerned.
The ETH token has shot up more than 380% in value since the beginning of the year. At the same time, industry stalwart Bitcoin (CCC:BTC-USD) is only up about 60% in the same period.
The Ethereum platform is undergoing major changes to increase its scalability, transaction throughput and efficiency while reducing its gas fees. The platform has already shown significantly more real-world utility than its peers, and future upgrades will create more divergence between them.
The London and Shanghai Hard Fork
The whole crypto sector has been buzzing since the release of Ethereum’s London hard fork. This is a major step towards Ethereum 2.0 and introduced some critical changes to the network.
Most notably, it updated the fee structure to an algorithmically determined model. It involves a base fee, which is usually 25% to 75% transaction value, and a priority fee that incentivizes miners to put a particular user’s transaction first.
In contrast to the first-price auction model the platform ran on previously, the new model was said to significantly boost efficiency. However, the base fee is burned after each transaction is complete, making ETH a deflationary asset. The currency’s supply is likely to reduce overtime, pushing its price higher.
The Shanghai hard fork is the next and perhaps final upgrade that will wrap up the Ethereum 2.0 update. It will go live anytime between the end of this year and early to mid-2022. The update is likely to merge Ethereum’s mainnet and Beacon Chain to implement proof-of-stake protocol.
Ethereum Has an Abundance of Use Cases
Bitcoin, the undisputed leader in the crypto space, is more of a safe haven asset for investors against fiat currencies. However, Ethereum is an ecosystem that is powering the digital economy.
Aside from the typical staking involved with most cryptos, it is the foundation for decentralized finance (DeFi) protocols. These are based on smart contracts, which execute when a predetermined criterion is met. Crypto investors have at least 7.7 million ETH tokens in DeFi protocols at this time.
Moreover, Ethereum is a dominant force in the nonfungible tokens, or NFT, space. NFTs are unique tokens that can represent avatars, art, music and other related items.
The NFT market has been booming this year, and Ethereum has been powering those transactions. Virtually every NFT exchange uses ETH to conduct these transactions on their respective platforms.
Ethereum is also a base layer for stable coins such as Tether (CCC:USDT-USD), pegged to the US dollar. More than 50% of transactions in Tether are based on Ethereum.
2.0 Can Help Ethereum Outpace Bitcoin
Ethereum has been on quite a roll in the past year. Since the pandemic began, major institutional investors have loaded up on the crypto, which propelled its price up more than 2,700% since January 2020.
With Ethereum 2.0 around the corner, its value is expected to rise even further. The platform will become more robust than ever before, offering even more utility for its user base. Hence, ETH-USD is perhaps the hottest crypto to invest in these days.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.
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