If the Economy Is So Strong, Why Are Consumer Stocks Tanking?
wsj.com
wsj.com
https://www.buzzfeed.com/suzystrutner/how-much-you-need-for-...
Housing / land valuation is wildly off from the needs of the people. For more than literally my entire life there has been a chronic shortage of housing, with less built than is necessary for multiple decades of time. The issue has compounded.
We are at the point where the solution is to literally build housing non-stop and just do that for years.
Edit:
The buzzfeed article mentions National Low Income Housing Coalition as the source of it's infographic. Here are some additional links. https://nlihc.org/oor/report-graphics
One bedroom home in hours worked by county: https://nlihc.org/sites/default/files/oor/2023/2023OOR-ppt-f...
Two bedroom rental in dollars per hour: https://nlihc.org/sites/default/files/oor/2023/2023OOR-ppt-f...
Growth in the developed countries with housing shortages keeps getting revised down.
If two single-family houses were torn down to make room for one new-build, single-family house, then it is a loss of housing. Not to mention natural disasters, condemned housing, rural housing being torn down for farmland, urban housing being torn down for new highways. I do wonder how many houses were destroyed in that same timeframe.
I thought there was more housing sqft per capita in the US than just about anywhere else? If so it seems more like a distribution problem.
We were turned down for a mortgage at the first bank we tried because we refused to finance enough to improve the landscaping. The bank wanted to see what the ROI on the home was. We were buying a forever home. Increase in value is someone else's problem after I'm dead.
It was. Well. Fascinating.
The bank would just be tasked with handling the paperwork (underwriting) of ensuring it is a conforming loan by getting an appraisal done and verifying your income/assets so they can get paid by the US government (fannie mae/freddie mac/ginnie mae/etc).
Not to mention that a lender does not get a piece of the collateral's sale price, so why would they care what improved landscaping would do to the price of the home if and when a homeowner wants to sell it?
Your scenario only makes sense if the lender was also getting a piece of the equity.
I don't think it's realistic to expect that multiple families will start living in houses intended for one, so the amount of sqft doesn't help as much.
That is common in other countries, though it is usually a single extended family.
Not saying we should evict random people, but it is objectively a terribly inefficient allocation of societal resources. There's no easy answer.
If there is a housing shortage then the unaffordability is reflective of proper valuation.
If people need more housing than they are getting, a free market would indicate valuations to go higher. I would suspect that you’d like to see housing revalued lower, though
Housing supply is not a free market. At least in the US, there's a committee reviewing each parcel deciding how many sqft of interior space, how many kitchens, how tall, and what uses.
They're competing with VCs trying to build developments and companies trying to turn a profit. Gone are the days of the "Fixer Upper" that Tim Taylor would buy, drop a reasonable amount in repairs, preform the repairs themselves, and then turn a modest profit.
Everyone who buys a house today wants the value to go up. Nobody who can afford a house needs one. They are not commodities that you utilize and repair. They are now investments, vehicles to grow your money.
That's great for all the snobbish out of touch retirees. But the middle class needs somewhere to hang their hat so they can rest up and make it to work tomorrow.
You want to increase the supply. I want to tank the demand. Your method won't work because if regular people could afford to compete, they would be already. The players in the market manipulated the prices once to give themselves an advantage. You're just giving them an opportunity to do it again. Only now they have the market cap to do it right.
The price will come down when the demand shifts from mcmansions to regular, affordable housing. It will be funny to see all those $1m+houses sit on the market as the correction unfolds. Nobody asked for them in most places. They were added by developers seeking to gentrify small towns like Rowley MA.
And taxes will come down too because towns will have no choice but to tax property owners more reasonably.
What data do you have to support this?
> As of 2022, investment companies own about one-fourth of all single-family homes in the US, accounting for 22% of American homes sold, down from 80% in 2020-2021
Naturally, the homes bought are all in the most densely populated areas with a relatively new construction (gentrified neighborhoods). I think it's gonna be a couple years before prices drop.
Large institutions own 5%. Most of these "investors" are house flippers and small landlords trying to "make it big in real estate". It's not the 1% strangling the working class, it's the 10%. Any solution that doesn't hit them the hardest won't be a solution. Infact, we want more density, we need more gentrification, so I don't want to discourage large institutions from investing in a new apartment. But at the very least, if you claim to care about housing prices, don't prevent the government from building more housing.
Individual home owners and business interests have a vested interest in maintaining a very tight grip on the status quo with regard to zoning, which is the primary tool for driving housing reform.
They will continue to do everything in their power to prevent the construction of affordable housing, because it will destroy their current real estate investments.
The non-landed folks have zero leverage within the political system.
Unfortunately those sorts of structures are banned by most municipalities.
It does not have to be this way.
So the other fundamental problem is that it is impossible to save money because it is constantly being debased.
I think if we allowed house densities to increase and changed zoning laws to allow houses to be built. The cost of housing would fall significantly especially if VC saw a wave a new house they would be prompted to sell before the wave (at a lower prices) or risk significant loses.
Whether you could actually build enough houses to fix the supply inversion is another question. However, without changing zoning laws I don't see how you'd even be able to try catch supply at this point because the places where houses need to be sold prevent multi family units which are much more efficient at soaking up demand per unit than single family houses
What you're trying to say is that it would be less profitable and that may be true but as long as it tracks with inflation it would be worth it as an investment tool.
good luck with that.
Can you point it out for me?
This isn't all land. It's just desirable land - in cities basically. The urban to rural migration has been going on for many decades now and doesn't seem to show any signs of slowing down.
https://fred.stlouisfed.org/graph/?g=1aeIa
If you want to understand the housing price problem, look no further than the irresponsible monetary policies of the last 20 years.
Simply looking at median house prices to median household income we can clearly see the impacts to housing prices from the stimulus following the dotcom bust, the stimulus following the housing bust, and the stimulus from the pandemic. Hint, they're the big upward slopes.
https://fred.stlouisfed.org/graph/?g=1adYW
Take away the irresponsible and unnecessary stimulus and you have a reasonable housing market at 4x income, not 6x.
I live in "flyover country" and we don't have those problems here.
If I can get ~5% risk free return from treasuries, I need to believe I can get MORE than 5% return on equity to pay for the risk. So prices have to fall.
I'm surprised prices haven't fallen more given we've gone from 0% risk free return in a short period.
From 1964 to 1981 (17 years), the US stock market went nowhere. From 1981 to 1998 (the next 17 years), it went up ~10x:
Date DJIA
12/31/1964 874
12/31/1981 875
12/31/1998 9,181
Source: https://finance.yahoo.com/news/mr-buffett-stock-market-fortu...
1985 1,546.67
2008 8,776.39
What years you pick changes impressions. The 70s were an economic mess though.
- Down 1.x% the last month
- Up 2.x% YTD
- About equal over 6months
- Up 13% over last year
That's "tanking"? The article talks about 52-week lows. The market is up nearly 13% over that 52 week period.
How is this even newsworthy? Yes, the market goes up and down.
The next time the market goes up 1.X% will they post an article about how much the market is "surging" and how strong the market is?
https://www.morningstar.com/consumer-cyclical-stocks
Looking at the biggest ones, I see a lot of double and triple growth YTD with some single digit negative growth.
Also, retail losing business to Walmart + Amazon and maybe Shopify. it's not so much that retail is dying but that the $ is going to fewer firms.
Edit: This also means that much of the money you would make from owning something like McDonald's can't be seen by just charting the growth in stock price. You have to also look at the money you could make by taking the dividends and putting that somewhere.
What about the money you could lose by taking the dividends and putting that somewhere?
That said, sibling post disputes if the factoid is even true. So, not clear what the full point is. I am personally sympathetic to the idea that dividends used to be one of the defining differences between profit and non-profits. You have to get into buybacks to fully see the differences today, I think. And that does feel like a very different thing. The argument doesn't get any favors from false factoids, though. :(
https://dqydj.com/stock-return-calculator/
MCD is 11.29% per year for the last 5 years. AAPL is 28.2%, MSFT is 26.49%, GOOG is 20.91%.
Even a riskless SP500 investment earned 11.139%
McDonald's did outperform both SP500, Amazon and Facebook.
My point was that this kind of comparisons are true when you speak about sectors (growth vs dividend growth the first is gonna outperform in the long run, it's designed to...) but if you compare on a stock basis you find plenty of tech mega caps outperformed by old boring business if dividends are included, McDonald's was just a random example.
MCD outperformed AMZN.
META (14%+) outperformed MCD.
SP500 was equal to MCD.
> if you compare on a stock basis you find plenty of tech mega caps outperformed by old boring business if dividends are included, McDonald's was just a random example.
What is a stock basis? If your unit of accounting is money, and your goal is money, then the total return calculator, which includes dividends, linked above is going to give you the only answer.
I cannot conclude there are not plenty of businesses out there outperforming the tech megacaps. Amazon might be lagging in the 5 year period, but you have to look on a timeline of decades. There is a reason these companies are at the top of the market cap rankings. There are entire sectors of other old businesses have not increased in decades by what just AAPL or MSFT alone have grown.
For the poor and working class: the economy may be terrible.
For the rich and owners of capital: it may be fantastic, if they want to impress, or terrible if they want to layoff and hedge.
I get that if GDP growth is less than inflation, then in real terms the economy is shrinking, even if nominal GDP goes up. But stock prices are in nominal dollars; steady stock prices (or prices increasing at the same rate as GDP) would mean a real decline in value. But explaining why prices for these stocks are falling in nominal terms should involve something about why they would grow slower/shrink faster than the rest of the economy, right?
People can keep clamoring for it, but the only recession the US is possibly in is a “vibes based” recession.
https://ycharts.com/indicators/us_recession_probability
Maybe because the current state implies a higher than normal probability of the US being in a recession? Kinda accounts for the vibes.
Lower discretionary spending for a long enough time means growth slows. The prices traders are willing to buy stocks is a function of a company's future growth prospects. Slowing growth rates makes for a recession.
Too many politicos define "strong economy" in terms of unemployment rates because they're simple scalar values. Full employment with high prices doesn't make for an environment where anyone can eke out margins.
Going green will destroy our economy because there is no infrastructure to replace fossil fuels yet.
The "two quarters of negative growth" was only ever a rule of thumb that mostly fit, never the official definition.
The boomers are retiring, and they're the first major group to retire under 401(k) program. They will be selling stocks and bonds (and whatever else they've invested into) and are no longer buying stocks with their end-of-career top-level paychecks.
Boomer 401ks are probably <5% of the stock market, and they aren't going to 0 overnight.
The idea that boomer 401k withdrawals is going to crash the stock market or tamp out future growth is pretty strange.
Defined benefit & defined contribution pension plans are both larger chunks of the stock market than 401ks.
And all of those together are a smaller chunk than foreigner holdings.
(This is not to say that you, specifically, are a "sucker", and I don't love the term. But I think Taleb has a lot to offer on considering risk.)
401k are a type of defined contribution retirement plan.
As you'd expect the contribution percentage increases with age (and the amount presumably increases even more). But even under 25s are at about 5% which is more than I would have expected though this is presumably just among people who have the option.