🏠 Housing hits a wall

Thursday, July 21, 2022 by Robinhood Snacks |
Outpriced in suburbia (Thomas Northcut/Getty Images)

Outpriced in suburbia (Thomas Northcut/Getty Images)

Outpriced in suburbia (Thomas Northcut/Getty Images)

Outpriced in suburbia (Thomas Northcut/Getty Images)

Yesterday’s Market Moves
Dow Jones
31,875 (+0.15%)
S&P 500
3,960 (+0.59%)
Nasdaq
11,898 (+1.58%)
Bitcoin
$23,626 (+0.99%)

Hey Snackers,

Talk about an offer you can’t refuse: the mansion featured in “The Godfather” is now available on Airbnb. You won’t find Don Corelone there these days, but you will find a big saltwater pool.

The Nasdaq gained 1.6% yesterday after better-than-feared earnings from Netflix and Tesla. The US dollar continued gaining against the euro ahead of the European Central Bank’s key policy decision today. Also today: we’ll see whether Russia restarts gas exports to Europe from the Nord Stream pipeline.

Escrow

Buying your dream house… is becoming a nightmare. Demand for mortgages hit a 22-year low last week, as more would-be buyers got squeezed out of a pricey market. Home sales have fallen for five months straight, as prospective buyers deal with a triple whammy of challenges:

  • Ceiling costs: The median price for an existing home hit a record $416K in June. Blame low inventory.
  • Roof rates: The cost of borrowing $$ for a mortgage has nearly doubled this year as the Fed hikes interest rates.
  • Crowded lawns: The average house is on the market for just 14 days before it’s sold, the shortest cycle on record.

Not keeping up… Median incomes in the US have increased 14X since 1960 — but median home prices have soared 36X. The housing-affordability crisis accelerated during the pandemic as buyers ditch city rent for suburban mortgages — and priced out locals. And it’s getting worse:

  • Long road: By the end of this year, it’ll take 11+ years for a first-time buyer with median income to save for a 10% down payment. Pre-pandemic, it took half as long.
  • Broken system: The average US worker needs to pay about a third of their income to afford a median-priced home — the highest level since the ’07 housing bubble.
THE TAKEAWAY

The picket fence is out of reach… Homeownership was once a cornerstone of the American dream; now it’s becoming inaccessible for average families. Homes became less affordable in 97% of the US last quarter (FYI: last month rent also jumped at its fastest pace since 1986). And while housing inventory is expected to increase in the coming months, experts say 60% of Americans won’t be able to afford starter homes through 2025, especially those in communities of color.

Fazed

FaZe SPAC... Gaming influencers just took themselves public. FaZe Clan launched as a gaming YouTube channel in 2010. Think: mostly guys in gaming chairs posting “Call of Duty” "sniping" videos. Today, FaZe is an esports and media company with 93 members (including Snoop Dogg). In May, Forbes ranked it the fourth-most-valuable esports company. Yesterday:

  • FaZe went public on the Nasdaq after completing a $725M merger with a SPAC (aka: special purpose acquisition company) called "B Riley Principal 150 Merger Corp." — claaaassic SPAC name.
  • The debut is a milestone for "creator economy" brands, most of which are private. FaZe has 500M followers across socials like YouTube, Twitch, and TikTok.
  • Fazed: Despite its viral clout, FaZe stock plunged 24% on its first trading day. FYI: it was planning to go public last year in a $1B deal, but that didn’t pan out.

Unique timing… FaZe’s debut comes at a time when public offerings and SPACs have been struggling. Given the inauspicious macro environment, many planned SPAC deals have been canceled or put on ice. SPACs boomed mid-pandemic, accounting for ~70% of all IPOs last year. DraftKings, Virgin Galactic, and Opendoor are just a few that went public through a SPAC. Now, the oversaturated market has lost steam and is riddled with losses.

THE TAKEAWAY

Followers ≠ investors… FaZe calls itself the “first creator-based brand to go public,” but its impressive following may not be enough to lure investors. While it’s forecasting that revenue will nearly double this year to $90M, FaZe also expects a widening loss of $19M. In this unsteady environment, some investors have ditched “growth stocks” in favor of companies with steady profits. Companies that merged with SPACs lost half their value in the first six months of this year.

What else we’re Snackin’

  • Suds: Fragrance icon Bath & Body Works slashed its annual sales forecast. The soap staple says #flation has washed up spending and made low-income shoppers more cost-conscious.
  • Jolt: Tesla posted better-than-expected revenue as sales revved up 42% last quarter. But profit margins from its core car biz fell as costs of components like battery cells spiked.
  • Nord: The European Commission proposed that member countries cut gas use by 15% through next March. The EU’s worried that Russia will continue slowing gas supply to the continent.
  • Ring: Regulators in India accused Chinese smart-phone makers Xiaomi, Vivo, and Oppo — which control 60% of the Indian market — of skirting taxes. The crackdown could raise tensions between the key trade partners.
  • Bill: UK regulators introduced rules for using stablecoins (cryptos whose prices are pegged to another asset) to Parliament as part of a larger financial-services bill. The US is also eyeing stablecoin regulation.

Snack Fact of the Day

Minimum-wage workers in the US are earnings less now than they were 60 years ago (after adjusting for inflation)

Thursday

  • Jobless claims
  • Earnings expected from Domino's, AT&T, Quest Diagnostics, Boston Beer Co., Philip Morris International, Tractor Supply Co., Capital One Financial, Union Pacific, SAP, Equifax, AutoNation, and Dow

Authors of this Snacks own: shares of Tesla, and Netflix

ID: 2305162