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Economic Roundup: Jobless Claims, Home Sales and China’s Negative Rates

Jobless claims rise, Home sales boom and China scores a big debt deal.
(Phonlamai Photo)
(Phonlamai Photo)
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“The number of applications for unemployment benefits rose sharply last week, indicating continued challenges for the U.S. economic recovery as coronavirus infections increased around the country,” WSJ writes.

Initial Unemployment Claims Last Week: 742,000 (up from 711,000)

The economic recovery was continuing but has since stalled. Now, the country faces the challenges of surging virus cases, new restrictions, more job cuts and a lack of job opportunities since seasonal businesses can’t function as normal with consumers staying home.

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“U.S. home sales rose to a 14-year high last month, a rare bright spot for the economy as ultra-low borrowing costs and the sudden shift in living preferences during the pandemic power the market,” WSJ writes.

The S&P Homebuilders Select Industry Index is up 24.2% this year (compared to the 10.8% rise in the S&P 500).

  • Data from the National Association of Realtors showed existing-home sales in October jumped up 4.3%, from September, to a seasonally adjusted yearly rate of 6.85 million, the highest since February 2006.

October marked five consecutive monthly gains, one of the best stretches for the housing market in years. Home sales started to pick up just before Covid-19 but have since surged.

  • Even if the market cools next year when policies that allow for suspended mortgage payments expire, “robust demand is expected to persist, as a large generation of millennials continues to age into their prime homebuying years.”

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“Super low interest rates in Europe helped China to sell its first negative-yielding debt, as it raised about $4.7 billion in a three-part deal in euros,” WSJ writes.

“People want more exposure to China,” Samuel Fischer, head of China onshore debt capital markets at Deutsche Bank, told WSJ. “China’s financial markets are opening, but there is still a broad scarcity of the sovereign [debt] among investors. The story of China’s Covid[-19] turnaround and the resilience of its economy are also things people like.”

The deal drew “robust demand” — investors spent around €18 billion in total orders — “aided by China’s rapid return to economic growth after tackling the coronavirus and the relative scarcity of Chinese bonds denominated in the common currency.”

Justin Oh:

Home sales are up, inventory is at historic lows, and interest rates are also at historic lows. Housing starts are at average historical levels, keeping a constraint on new home supply. As a result, home prices are skyrocketing. 

One interesting dynamic is that home ownership is up dramatically to levels not seen since the housing bubble of 2007-2008. I wonder if this will hold steady post-pandemic.

This is not an environment in which I’d want to be investing in residential rental real estate. I still have outstanding questions about the multifamily real estate market and will keep an eye out for more research there. Another question I have is if there are prime distressed opportunities in commercial real estate, especially in office and retail.

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