🤯 U.S. Housing Situation Just Got Worse

Residential Construction in the U.S. had one of its worst months. April 17, 2024 | Peel #690 In this issue of the Peel: - ⛔ Residential Construction in the U.S. had one of its worst months. - 🚨 Tesla hits a 52-week low. WSO Alpha really took an L on this one. - 🆘 Bank of America stock fell on earnings… what’s going on? Market Snapshot 📸 Smart Resumes, Smarter Careers = Elevate your first impression in the finance world with WSO Academy's smart resume services. Harness the power of AI to craft resumes that don't just list your experiences but highlight your potential. Our AI-driven approach analyzes and optimizes every detail, ensuring your resume speaks directly to finance industry leaders. Combine this with our AI-enhanced LinkedIn profile reviews, and you're set for a smarter, more strategic career path. Step into the era of intelligent career tools with WSO Academy. [Click here to join the WSO Academy Waitlist. Limited slots only.]() Macro Monkey Says 🐒 No House For You Getting a house in the U.S. over the past few years has become about as impossible as it was for Elaine to get a bowl of soup in one, particularly famous episode of Seinfeld. But, instead of the soup n*zi saying, “No soup for you!” we have a housing market saying, “No house for you” across the entire economy. And just to add icing to the cake—or the crackers to the soup—home builders in the U.S. decided to make conditions even worse last month. Fed Chair JPow, homebuilders, and boomers have collectively become the house n*zis for the U.S. economy. So, we’re gonna have to get into it. What Happened? Yesterday, we found out that New Residential Construction in the U.S. had one of its worst months in well over a year this March. Permits, starts, and completions all fell dramatically for the month. This data comes off of a strong February when the love in the air from V-Day must’ve driven some generosity among home builders. But, to quote Lil Wayne and Eminem, now there’s no love. Housing permits—a.k.a. future housing supply—fell 4.3% for the month but remained 1.5% higher than March 2023. The real problem appeared in Housing Starts. This is the data series tracking new residential buildings that made it past the permit stage and have broke ground on construction. And as we can see here, it’s not a pretty picture. Housing Starts had their worst month since last August in total numbers, but in terms of percent change month-over-month, it was the worst since… April 2020… falling 14.72% for the period. No need to remind you apes of what was going on then. The reason March’s data is especially concerning stems from the fact that March/April-July/August tends to be the period seeing the highest growth in New Residential Construction. February’s data got us hyped, setting the expectation that construction would be through the roof (no pun intended) in 2024. Finally, housing completions were almost as horrific as starts last month. The total number of houses that finished construction sank nearly 13.5%, suggesting that demand for homes at rates may not be as robust as February got us hyped for. And, that brings us to our final character in this episode—mortgage rates. Despite the fact that JPow and the the FOMC have been putting on a more dovish demeanor, treasury yields have been rising as bond markets anticipated less and less rate cuts. Mortgage rates are almost universally issued on top of the prevailing 10-year treasuries, then adding in factors like inflation, credit risk, and whatever other nonsense they spin to fleece more money out of us. And it’s exactly this dynamic—high rates and low supply—that created the frozen housing market we’re apparently still experiencing. The Takeaway? The one saving grace in this sh*tshow of housing data can be found in the above chart on affordability. Above 100, typical families earning the typical income can afford a typical home, assuming a 20% down payment. In February, affordability declined, and we don’t yet have the March data so it’s difficult to tell. But, as long as affordability holds above that 100 level and most families can buy most houses they reasonable desire, then the market should continue to thaw. Now, that thawing only works if we turn up the heat (again, no pun intended) on 1) interest rate cursor and 2) growth in housing supply. We’re clearly not seeing the latter, but even if rates do fall, that should pull average home prices higher, so really, we need homebuilders to hook it up. Or, if we could get JPow and the Fed to throw on a hard hat, that could benefit everyone… even home sellers, as I’m sure all 340mn Americans would love to see that guy try to use a hammer. = What's Ripe 🤩 UnitedHealth Group (UNH) 📈5.2% - Don’t worry, apes. Despite leaking your medical records during that silly little cyberattack last year, UnitedHealth is still strongly fleecing customers. - The largest health insurer in the U.S. reported revenue of $100.1bn in Q1 vs $99.26bn expected, while EPS beat by a solid 8.3%. - Guidance was also slightly raised, and with numbers like that, it’s no surprise the firm led the useless Dow index on Tuesday. Morgan Stanley (MS) 📈2.5% - Breaking News: Wall Street has a way better customer base than Main Street. Goldman’s numbers said it yesterday, but Morgan Stanley just confirmed. - The rich-people-focused bank reported EPS of $2.02/sh on $15.14bn in revenue vs estimates for $1.66 on $14.41bn. Almost every segment beat expectations. - Wealth management, the bank’s key growth engine, rose 4.9% YoY, while investment management grew 6.8%, and banking fees surged a massive 16%. - That should cool down the roasting fresh CEO Ted Pick faces at the conference call, given that shares are still down over 4% YTD and flat YoY. What's Rotten 🤮 Live Nation (LVY) 📉7.6% - Fans of Travis Kelce’s girlfriend rejoice! I can’t remember her name, but I know her stans hate Ticketmaster, so they’re gonna love this one. - Ticketmaster’s owners got hit with a DoJ antitrust suit late on Monday, tanking shares as, literally, everyone knows it’s more of a monopoly than that board game with the guy wearing a monocle. - It’s a complicated one, as Live Nation exec Dan Wall [points out here](). “Monopoly” is a tricky term to define, but we know the DoJ ain’t playing games. Tesla (TSLA) 📉2.7% - We really couldn’t have picked a worse time to publish our Tesla report, as shares near a new 52-week low, but I guess Elon just wants us to fail. - That’s because Monday’s announcement to lay off >10% of Tesla’s workforce is causing further concern around EV demand on Tuesday. - Elon said on the news “there is nothing I hate more” and that we have in common; nothing we hate more than a falling share price. And, keep in mind… - …this comes just days after Tesla’s weak-*ss delivery numbers dropped, so it's safe to say their summer bod is far from ready (another thing we have in common). Thought Banana 🤔 Earnings Spotlight: Bank of America Bank earnings roll along, and yesterday, the Bank of Freedom, I mean America, was dominating the ticker tape. And, by dominating the tape, we of course, mean sh*tting the bed with shares falling 3.5% on the day. PNC, Northern Trust, and BNY Mellon all fell on earnings yesterday as well, but BofA is the largest of the group and, convenient for me, was also the largest decliner. So, let’s get into it. The Numbers [Source]() Bank of America reported: - EPS $0.76/sh, in line with expectations, but $0.83/sh, excluding an FDIC charge - Revenue of $25.98bn vs estimates of $25.46bn Alright, so the bank beat expectations overall, but barely, and the rest of the report gave little reason for excitement. Profits fell 18% compared to last year at $6.7bn. That was a sizable leap from Q4, but the final quarter of 2023 also carried a $2.1bn FDIC charge. In Q1, that FDIC charge clocked in at “only” $700mn. This was due to the shenanigans leading to bank failures last spring, so this should be the final charge stemming from that nonsense. Revenue fell 2% compared to last year as well, with consumer banking revenues down 5%. Credit card spending increased in the first quarter, which should be beneficial for the bank as long as they actually get paid back (TBD). [Source]() Net interest income fell 3%, non-interest income was basically flat, and the size of the bank’s unrealized loss on its bond portfolio mooned to an enormous $109bn. That will only matter if they have to sell AFS assets to cover withdrawals, but given the events of SVB last year, it’s hard not to be worried. Meanwhile, global banking revenues fell 4% while others like Morgan Stanley above and Goldman yesterday saw growth in the high-teens. But, there was at least some good news for investors. BofA’s wealth management division—the firm’s key growth engine—popped 5% to $5.6bn while assets reached a total of $3.93tn, both all-time records. And finally, BofA’s markets segment revenue grew 5% on a revival of capital markets activity. See, if you didn’t believe me above, now it should be clear that Wall Street is a way better business than Main Street. The Takeaway? Interest rate hikes were the ultimate alley-oop for these banks in 2022 and 2023, but as time goes on, customers get greedy, demanding higher APYs to not dip with their deposits. That’s putting a squeeze on bank’s net interest margins. And, when you’re BofA and you focus on consumer banking more so than others like MS and GS locked in on Wall Street, that squeeze will be even tighter. 💭 The Big Question 💭: Can Bank of America recover from the near-across-the-board revenue declines in Q1? How will the bank’s fundamentals change in a rate-cutting environment? How worried should we be about that $109bn bag they’re holding? Banana Brain Teaser 💡 Previous 🗓 If (1-1.25)N = 1, then N equals what? Answer: -4 Today 🕐 The quotient when a certain number is divided by 2/3 is 9/2. What is the number? Send your guesses to vyomesh@wallstreetoasis.com Wise Investor Says 🤓 “The key to a thriving economy is the success of small businesses.” — Brian Moynihan, BofA CEO (market cap ~$275bn) How Would You Rate Today's Peel? 😁[All the bananas](=) 😐[Meh]() 😩[Rotten AF](=) Happy Investing, David, Vyom, Jasper & Patrick [ADVERTISE]() // [WSO ALPHA]( // [ACADEMY]( // [COURSES]( // [LEGAL]( [Unsubscribe]( IB Oasis Corp. (aka "Wall Street Oasis") 20705 Saint Charles St Saratoga, California 95070 United States (617) 337-3353