Weekly Financial Wrap: Housing, Car Subscriptions, Inflation and Value Investing
Housing Market Peaking?
Home sales continue at record levels. However, prices show signs of easing — indicating a slightly more buyer-friendly market.
“Even though homes continue to sell faster in what is solidly a sellers’ housing market in most areas, another jump in the number of new sellers compared to a year ago has caused some of our weekly metrics to take a tiny step in a more buyer-friendly direction,” writes Danielle Hale, chief economist for Realtor.com. “Home price gains eased this week although they continue to grow at a double-digit pace. On top of this, the size of inventory decline held steady. Buyers will still have to move fast and are likely to face competing offers, but there are signs that as sellers come to market, the intensity of the competition could lessen.”
Over the past 39 weeks, demand for houses has exceeded the supply of houses for sale. As a result, many houses are selling above their asking price.
A Realtor.com survey found that 25 percent of first-time buyers lost a bidding war for a home.
On the bright side for buyers, new listings were up five percent the week ending May 8. Plus, another Realtor.com survey indicates more sellers are getting ready to jump in the pool.
“The survey results show that 10 percent of homeowners across the United States plan to sell within the next 12 months,” writes Realtor.com Senior Economist George Ratiu. “The figure is noteworthy because it is 25 percent higher than the typical share of homes which come to market in a typical year.”
That same survey reveals that 16 percent of homeowners said they are likely to list their homes in the next two to three years.
For now, costs are still high with May’s median listing price expected to top April’s $375,000. However, with more sellers indicating they are ready to enter the market, buyers may get some relief.
Car Subscriptions Growing
The next trend in the automobile industry is vehicle subscription services. This business is projected to grow into a $12 billion industry by 2027.
How It Works
A car subscription service provides you with a vehicle for a monthly fee. Subscriptions run anywhere from one to 12 months. The service often includes maintenance, 24/7 road service, and insurance. In addition, you can switch cars as often as every month.
“Flexibility, affordability, and convenience along with better benefits as compared to leasing drive the growth of the global car subscription market, “ according to a report by Allied Market Research.
Corporations will continue to lead the auto subscription market through 2027, says Allied. However, the greatest growth in subscribers is expected to be consumers. The private segment of the industry will leap almost 24 percent.
Big names have gotten into the car subscription business. Volvo, Nissan, Porsche, BMW, Audi all offer subscription service. In addition, leasing giants such as Hertz and Enterprise are also in the game.
Moving to Electric
In 2019, about 75 percent of subscription vehicles were gas-powered. That dominance is expected to continue for most of the next six years.
“However, the electric vehicle segment is estimated to witness the highest CAGR (compound annual growth rate) of 26.5% during the forecast period, owing to high penetration of the electric vehicle sales and traction towards electric mobility,” said allied.
In fact, one auto subscription company, Steer, only offers electric vehicles.
Is Inflation A Fear or A Reality?
A little over a week ago the stock market panicked over inflation fears. Then it bounced back after those fears subsided. So, are we headed toward inflation or not? How do you measure inflation after a pandemic? How do we guard against such uncertainty?
SA will try to answer those questions in Sunday’s focus article.
Return of Value Investing
Corporate earnings for the first quarter have largely exceeded expectations. In addition, the economy is opening wider all the time. As a result, the stock market is simmering just below record highs. However, some analysts say continued gains may be choppy citing the uncertainty of inflation and tax issues. Consequently, investors are turning from growth to value.
“The S&P 500 Value index — made up of the top 100 S&P 500 stocks deemed to be cheapest as per their price-to-book value, earnings-to-price and sales-to-price ratios — has returned 8.6% in 2021 as of March 8, beating the 2.0% gain for the broader S&P 500 index,” writes S&P Global’s Peter Brennan.
The S&P Growth Index has declined 3.8 percent over the same period, Brennan points out.
So far this year, Russell indexes reflect the same trend. The Russell 1000 Value Index is up 11%. Meanwhile, the Russell 1000 Growth Index is down 0.2%.
That is the widest gap between growth and value stocks since the burst of the tech bubble in 2000.
Growth stocks typically refer to stocks with the potential to one day deliver a return while surviving on debt. Low interest rates allowed tech companies to fund their growth that way. However, with concerns about the prospect of inflation, investors are looking for immediate value.
“As the rollout of Covid-19 vaccines quickens and the economy bounces back from last year’s shutdowns,” reports the Wall Street Journal, “portfolio managers are snapping up cyclical stocks—banks, energy companies and others whose fortunes are closely linked to economic growth. Those shares often fit the description of value stocks, which trade at low multiples of their book value, or net worth.”
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