Wall Street Breakfast: Eviction Friction

Eviction friction - A national moratorium on the eviction of tenants had previously been set to expire today, though a 5-4 decision at the nation's highest court will see the order extended for another month. Chief Justice John Roberts and Justice Brett Kavanaugh joined with the court's three liberal justices to leave the moratorium in place, with Kavanaugh issuing a one-paragraph concurrence detailing his views. "Because the CDC plans to end the moratorium in only a few weeks, on July 31, and because those few weeks will allow for an additional and more orderly distribution of the congressionally appropriated rental assistance funds, I vote at this time to deny the application" that had been filed by real estate firms and trade associations.Backdrop: The CDC eviction moratorium was put in place under the Trump administration, aiming to shield tenants who missed monthly rent payments from being forced out of their homes during the coronavirus pandemic (they still owe back rent). It was originally set to expire on Dec. 31, 2020, but Congress stretched the order until late January, and it was then extended several more times under the Biden administration. While the CDC last week announced a final, one-month extension through July, U.S. District Judge Dabney Friedrich ruled the moratorium was legally unsupportable, though she stayed her ruling (pending appeal) citing public-health concerns.While the moratorium has protected millions of tenants, it has also resulted in financial hardships for landlords. Property owners, which say they are losing $13B a month in unpaid rent, are still liable for taxes, insurance and maintenance costs tied to their real estate. They also said the ban on evictions is less justifiable now due to the easing of COVID-19 restrictions and a high number of vaccinated Americans.Reactions: "Allowing evictions to proceed when there are tens of billions in resources to prevent them would be wasteful and cruel," said Diane Yentel, CEO of the National Low Income Housing Coalition. Landlords feel differently. "With the pandemic waning and the economy improving, it is time to restore the housing sector to its healthy, former function," replied Charlie Oppler, President of the National Association of Realtors.Statistics: By the end of March, 6.4M American households were behind on their rent, according to data from the Department of Housing and Urban Development. On June 7, a Household Pulse Survey from the U.S. Census Bureau also showed that roughly 3.2M people in the U.S. feared an eviction in the next two months.Related REITs: Equity Residential (NYSE:EQR), AvalonBay (NYSE:AVB), American Homes 4 Rent (NYSE:AMH), UDR (NYSE:UDR), Apartment Investment and Management (NYSE:AIV), Essex Property Trust (NYSE:ESS), Camden Property Trust (NYSE:CPT), Mid-America Apartment (NYSE:MAA), Invitation Homes (NYSE:INVH), Bluerock Residential Growth (NYSE:BRG), NexPoint Residential Trust (NYSE:NXRT), Preferred Apartment Communities (NYSE:APTS), Sun Communities (NYSE:SUI), Clipper Realty (NYSE:CLPR), Centerspace (NYSE:CSR), Equity LifeStyle Properties (NYSE:ELS). (15 comments)

Read in Browser

LISTEN TO TODAY'S PODCAST AVAILABLE AT 8AM ON:

Top News

Shutterstock

A national moratorium on the eviction of tenants had previously been set to expire today, though a 5-4 decision at the nation's highest court will see the order extended for another month. Chief Justice John Roberts and Justice Brett Kavanaugh joined with the court's three liberal justices to leave the moratorium in place, with Kavanaugh issuing a one-paragraph concurrence detailing his views. "Because the CDC plans to end the moratorium in only a few weeks, on July 31, and because those few weeks will allow for an additional and more orderly distribution of the congressionally appropriated rental assistance funds, I vote at this time to deny the application" that had been filed by real estate firms and trade associations.

Backdrop: The CDC eviction moratorium was put in place under the Trump administration, aiming to shield tenants who missed monthly rent payments from being forced out of their homes during the coronavirus pandemic (they still owe back rent). It was originally set to expire on Dec. 31, 2020, but Congress stretched the order until late January, and it was then extended several more times under the Biden administration. While the CDC last week announced a final, one-month extension through July, U.S. District Judge Dabney Friedrich ruled the moratorium was legally unsupportable, though she stayed her ruling (pending appeal) citing public-health concerns.

While the moratorium has protected millions of tenants, it has also resulted in financial hardships for landlords. Property owners, which say they are losing $13B a month in unpaid rent, are still liable for taxes, insurance and maintenance costs tied to their real estate. They also said the ban on evictions is less justifiable now due to the easing of COVID-19 restrictions and a high number of vaccinated Americans.

Reactions: "Allowing evictions to proceed when there are tens of billions in resources to prevent them would be wasteful and cruel," said Diane Yentel, CEO of the National Low Income Housing Coalition. Landlords feel differently. "With the pandemic waning and the economy improving, it is time to restore the housing sector to its healthy, former function," replied Charlie Oppler, President of the National Association of Realtors.

Statistics: By the end of March, 6.4M American households were behind on their rent, according to data from the Department of Housing and Urban Development. On June 7, a Household Pulse Survey from the U.S. Census Bureau also showed that roughly 3.2M people in the U.S. feared an eviction in the next two months.

Related REITs: Equity Residential (NYSE:EQR), AvalonBay (NYSE:AVB), American Homes 4 Rent (NYSE:AMH), UDR (NYSE:UDR), Apartment Investment and Management (NYSE:AIV), Essex Property Trust (NYSE:ESS), Camden Property Trust (NYSE:CPT), Mid-America Apartment (NYSE:MAA), Invitation Homes (NYSE:INVH), Bluerock Residential Growth (NYSE:BRG), NexPoint Residential Trust (NYSE:NXRT), Preferred Apartment Communities (NYSE:APTS), Sun Communities (NYSE:SUI), Clipper Realty (NYSE:CLPR), Centerspace (NYSE:CSR), Equity LifeStyle Properties (NYSE:ELS). (15 comments)

Real Estate

The U.S. property market continues to remain red hot, with demand for homes outpacing supply. Mortgage rates are still at all-time lows and many consumers have pent-up cash from the pandemic, but builders face shortages of both labor and materials. On Tuesday, the Case-Shiller Home Price Index for April rose at its fastest pace ever, coming in at a blazing 14.6% Y/Y.

Current sentiment: In a recent survey, Coldwell Banker found that one in five homeowners plan to sell their current home over the next twelve months and that six out of ten homeowners who hope to sell, aim to relocate to a different city or state. When asked in a recent interview about what is going to happen to market prices, President and CEO of Coldwell Banker, M. Ryan Gorman, stated: "Well its anyone's guess where we go from here, but I'll tell you the fundamentals remain incredibly strong,"

"The fundamentals though, underwriting guidelines, cash offers, low speculation, low building are a lot of reasons to believe there is going to continue to be a lot of buyers, unfortunately not enough sellers, and continue to have some inventory constraints.

Some statistics: A recent summary of May 2021 existing home sales statistics put together by the National Association of Realtors found that the median price of existing-home sales has reached an all-time high, just over $350K. In addition, data provided by the National Association of Realtors points to the fact that houses are continuing to be driven by first-time home buyers, and cash sales have increased since last year. (10 comments)

Brought to you by Seeking Alpha Premium

Looking for the best stocks RIGHT NOW? Near perfect Quant Ratings along with high rankings in Growth and Momentum put these 3 stocks at the top of the Strong Buy list. It's no wonder Seeking Alpha Authors and Wall Street Analysts agree, these are "must haves" for your portfolio.

Don't look back 5 years from now wishing you had these 3 stocks in your account. See them now and discover the tools to stay on track with your investment goals by starting a 2-week free trial to Seeking Alpha Premium.
Tap here to get started

Stocks

The market has recorded a strong run in 2021, with the S&P 500 on track to register its fifth straight month of gains. The Nasdaq is also headed for its seventh positive month in the last eight, and while the Dow is red for June, it previously notched a four-month winning streak. Investors may be taking some profits before the last trading day of H2 - stock futures fell 0.2% overnight - though many are expecting the recent outsized performance to continue into the second half of the year.

Analyst commentary: "Strong growth, strong earnings, low interest rates, a bond market that's been lulled to sleep. The bond yields aren't really reacting to inflation news," declared Ethan Harris, head of global economic research at Bank of America. "Powell has done a good job of calming the waves in the bond market, so this is Goldilocks for equities."

There are still risks ahead for the latter half of 2021. Choppy trading could ensue if the Fed starts talking about tapering its bond buying program or inflation readings prove to be too hot for the economy. Supply chain shortages and bottlenecks also need to be worked out, while extended unemployment benefits run out for many Americans in September. Don't forget the COVID situation and the potential for more harmful variants.

On the economic calendar today: The National Employment Report is forecast to show private payrolls rising by 600K in June, after surging by 978K in May. While the figures will be watched by the market, there is more anticipation for Friday's jobs report, which will give a better picture on the state of the economy. That data has the potential to affect the Fed's monetary policy stance, which currently sees two rate hikes starting in 2023.

IPOs

Shutterstock

Chinese ride-hailing company Didi Global (DIDI) has reportedly priced its IPO at $14/share - at the top end of its expected range - valuing the firm at more than $67B. The IPO would raise more than $4B for the company, making it one of the biggest listings of 2021. It may also decide to increase the size of the offering before ADSs (American Depositary Shares) begin trading today on the New York Stock Exchange.

By the numbers: DIDI is offering 288M ADSs that will trade under the ticker symbol "DIDI." The firm has granted underwriters the option to buy as many as 43.2M additional ADSs for overallotments, while each ADS will represent 0.25 Class A ordinary shares. Didi reported $21.6B in revenue last year, while the company turned a profit in its last quarter on $6.4B in revenue.

Seeking Alpha contributor EM Investor is skeptical about such a high valuation, writing that Didi's growth potential "is without a doubt attractive, but the key question is at what cost investors should buy into this growth story." There are also some worries about investing in a Chinese company. The Communist party continues to wield a heavy grip on the economy and there are many concerns about transparency. Examples: Remember Luckin Coffee (sales scandal in 2019)? Phoenix Tree Holdings (delisted for shady disclosures in 2020)? RLX Technology (hit by a vaping crackdown plunge in 2021)? Some IPOs have not even made it to market like Ant Group, which was set to go public last year before Beijing stepped in, while other listings have faced heavy scrutiny like Chinese giant Tencent (OTCPK:TCEHY).

But... Didi has taken out the competition. Known as the "Uber of China," it literally bought Uber China from Uber (UBER) in 2016. Uber remains a major pre-IPO shareholder, owning about 12% of the ride-hailing giant, while Didi also has the strong backing of other Asian tech giants. The Softbank Vision Fund (OTCPK:SFTBY) owns some 20% of the pre-IPO stock and Tencent holds about a 6% stake. Other investors include Alibaba (BABA) and Apple (AAPL), which both have executives on Didi's board. (7 comments)

Outlook

As governments across the globe advance greener transport legislation to meet climate targets, a question that continues to surface is how much cleaner are electric vehicles (EVs) than traditional automobiles with an internal combustion engine (ICE). Estimates exploring the carbon gap have to cover thousands of parameters, such as the extraction and processing of minerals for EV batteries and the production of power cells. Other considerations are based on "after-sale" elements like the type of power used to charge an EV or the fuel dynamics and upkeep of a gasoline car.

Bigger picture: It's a little complex to delve into all the variables, so it may be easier to divide them between the "building" of the vehicles and their "maintenance." Compared to gasoline cars, EVs are not as green when it comes to manufacturing due to the mining of rare earth metals that are needed for their batteries. But once they hit the road, the only thing that contributes to their carbon footprint is the sourcing of their energy, giving them an advantage over gas-powered cars.

Meet the GREET model: The framework created by the Argonne National Laboratory in Chicago, called the "Greenhouse Gases, Regulated Emissions and Energy Use in Technologies," is being used to help shape policy at the EPA and the California Air Resources Board. Reuters recently took a test drive of the model, stacking up a Tesla (NASDAQ:TSLA) Model 3 versus a Toyota (NYSE:TM) Corolla, with the assumption that both vehicles would travel 173,151 miles during their lifetimes. The scenario also took place in the U.S., where 23% of electricity comes from coal-fired plants.

Results? Even before hitting the road, the analysis showed that the production of a mid-sized EV generated 8.1M grams of CO2 during the extraction and manufacturing process, more than the 5.5M grams for a comparable gasoline vehicle. One would also have to drive another 13,500 miles in a Model 3 - the average mileage motorists drive each year - before breaking even with the Corolla in terms of emissions. Tesla then pulls ahead... At Year 5, the Model 3 has emitted a total of 17M grams of carbon emissions (vs. 30M for the Corolla) and at Year 10, it has released 25M grams (compared to the 52M produced by the Toyota vehicle).

Not every country is the same: If the Model 3 was being driven in Norway, which gets most of its electricity from renewable hydropower, the breakeven point would come after 8,400 miles. Compare that to the 78,700 miles needed to reach carbon parity in nations like China and Poland, which generate the majority of their power from coal. (468 comments)

Today's Markets

In Asia, Japan -0.1%. Hong Kong -0.5%. China +0.5%. India -0.1%.
In Europe, at midday, London -0.5%. Paris -0.8%. Frankfurt -1%.
Futures at 6:20, Dow -0.3%. S&P -0.2%. Nasdaq -0.2%. Crude +1% at $73.72. Gold -0.3% at $1757.90. Bitcoin -1.5% at $34650.
Ten-year Treasury Yield -2 bps to 1.46%

Today's Economic Calendar

7:00 MBA Mortgage Applications
8:00 Fed's Bostic Speech
8:15 ADP Jobs Report
9:45 Chicago PMI
10:00 Pending Home Sales
10:00 State Street Investor Confidence Index
10:30 EIA Petroleum Inventories
11:00 Survey of Business Uncertainty
1:00 PM Fed's Barkin Speech
3:00 PM Farm Prices

Companies reporting earnings today »

What else is happening...

SpaceX (SPACE) prepared to spend $30B on Starlink (STRLK) - Musk.

All-time high: Moderna (NASDAQ:MRNA) jab effective against Delta variant.

U.S. senator encourages people to buy Bitcoin for retirement.

New online store... Shopify (NYSE:SHOP) cuts app store fees for developers.

Facebook's (NASDAQ:FB) Zuckerberg unveils newsletter-product 'Bulletin.'

Pain and no gain! Beachbody (BODY) gives back post-SPAC gains.

Southern California spot gas prices soar in confronting heatwave.

Shell (NYSE:RDS.A), Renault (OTCPK:RNLSY) weigh investment in EV charging.

Turnaround setback... Intel (NASDAQ:INTC) delays new data center processor.

Mizuho cites names pushing AI toward a $1T chip market.

World Investment

Wall Street Breakfast: Eviction Friction

Share this