HOT AIR BALLOON FLIGHT

By Julia Horowitz • Wednesday, February 23

Good morning. In today's newsletter: Investors are purchasing a record share of US homes. Plus, markets are rebounding as Wall Street waits for more news from Ukraine, and the Dow's top stock of 2021 is having a rough time.

 

US stock futures are higher after the Dow, S&P 500 and Nasdaq sold off on Tuesday. Markets in Europe gained ground in early trading, while stocks in Asia were mixed.

 

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NEWS ALERT

Investors are buying a record share of US homes

 

Home prices in the United States increased at the fastest rate on record in 2021. That's drawn in a flood of investors looking to cash in on the boom.

 

What's happening: Investors bought 18.4% of homes sold across the country during the last three months of the year, according to Redfin. That's an all-time high on records dating back to 2000.

 

The brokerage tracked purchases from private equity firms, foreign investors, trusts, mom-and pop-investors and "i"-buyers — or companies that use algorithms to spot deals and quickly flip homes. 

 

Behind the rush: Demand for homes has jumped since the pandemic hit, as Americans amassed savings and sought out properties better suited to working from home. Meanwhile, rock-bottom borrowing costs made mortgages more affordable.

 

At the same time, there have been serious constraints on supply. Inventory of homes dropped to record low levels in December, according to a recent report from the National Association of Realtors.

 

That's caused prices to skyrocket. Home prices rose 18.8% in 2021, according to the S&P CoreLogic Case-Shiller US National Home Price Index, which posted Tuesday.

 

This dynamic is catnip for investors, who have been hunting for more creative ways to generate returns. They shelled out $49.9 billion for homes in the fourth quarter, up from $35 billion one year earlier.

 

The shortage of housing is what's driving the affordability crisis, Redfin economist Sheharyar Bokhari told me. But because two-thirds of investors pay with cash, they have a "competitive advantage" over other buyers. 

 

"Investors are not the cause of the affordability issue, but since they are flush with cash, they are more likely to win a home over a regular homebuyer, creating a frustrating experience for those that keep losing offers," Bokhari said.

 

Single-family homes accounted for about three in four investor purchases last quarter. Lower-priced homes, which can create more opportunities for investors to turn a profit, were the most popular. 

 

All about location: You're most likely to be competing against investors if you live in the Sun Belt.

 

Redfin found that in Atlanta and Charlotte, almost a third of homes sold in the fourth quarter were bought by investors. In Jacksonville, investors made up close to 30% of home sales.

 

Why? All were below the national median for home sales of $383,000 in December, making them attractive to investors searching for deals.

VOICES

Wall Street waits for Putin's next move

"The key question now is how far into Ukraine President Putin wants to go."

 

SOCIETE GENERALE STRATEGIST KIT JUCKES

 

 

Read more from CNN Business.

MARKET FLASH

Markets enter a holding pattern over Ukraine

Global markets are rebounding and oil prices are easing after the United States and its allies hit Russia with only a limited first wave of sanctions.

 

The latest: Stocks have steadied after investors dumped them on Tuesday. The S&P 500 finished 1% lower, entering a correction.

 

That refers to when the index is down 10% or more from a recent peak, and indicates higher-than-normal selling of riskier investments.

 

Global oil prices, which rose 1.5% on Tuesday and at one point neared $100 per barrel, have also come down slightly. They were last trading near $96 per barrel.

 

US President Joe Biden warned Tuesday that Putin's decision to order Russian troops into two separatist regions in eastern Ukraine marked "the beginning of a Russian invasion," and unveiled an initial tranche of sanctions aimed at cutting Moscow off from the Western financial system.

 

Investors are now taking a breather while they assess a wide range of potential outcomes.

 

US Secretary of State Antony Blinken announced Tuesday that he had canceled a planned meeting with Russian Foreign Minister Sergey Lavrov in Geneva this week, a sign that diplomatic avenues to de-escalating the conflict could be quickly closing.

 

"The situation is very fluid and highly uncertain, so we don't think this is a time to attach high probabilities to any individual scenarios," Mark Haefele, chief investment officer at UBS Global Wealth Management, told clients on Wednesday.

 

The "greatest risk for investors from geopolitical crises has come from overreacting" or not sufficiently hedging their bets, he added.

 

On the radar: One of the biggest questions for the global economy, and for Wall Street, is whether oil and gas will continue to flow from Russia. If fighting damages energy infrastructure, or if Putin reduces energy exports to put pressure on the West, prices could jump, exacerbating inflation.

 

Biden said his administration was using "every tool at our disposal" to limit the effect of sanctions on domestic gas prices, though he acknowledged that Americans will likely see rising prices at the pump in the coming months.

UP NEXT

Lowe's, Molson Coors and TJX report results before US markets open. Allbirds, Bath & Body Works, Hertz, Booking Holdings, IMAX and Live Nation follow after the close.

 

Coming tomorrow: Earnings from Anheuser-Busch InBev, Moderna, Beyond Meat, Coinbase and Etsy.

WHAT WE'RE READING AND WATCHING

▸ Macy's avoids splitting off its e-commerce business (CNN Business)
▸ Aluminum and nickel hit multi-year highs on Russia fears (Reuters)
▸ Inflation keeps weighing on consumer confidence (CNN Business)
▸ Battery shortages could threaten US national security (CNN Business)
▸ Volkswagen is in advanced talks over Porsche IPO (WSJ)
▸ Supply chain update: Omicron rips through cargo ships (Bloomberg)

FINAL WORD

The Dow's top stock of 2021 is having a rough time

Home Depot's stock crushed it in 2021, soaring more than 55% thanks to strong demand from consumers in a red-hot housing market.

 

But shares of the company are now getting hammered because of inflation and fears that interest rate hikes from the Federal Reserve will cool housing demand, my CNN Business colleague Paul R. La Monica reports.

 

Shares plunged almost 9% on Tuesday after Home Depot reported earnings from its most recent quarter. While profit and revenue topped Wall Street's forecast, investors got spooked by the murky path ahead.

 

"While we are encouraged by the consistent and resilient demand we've seen for home improvement, broader uncertainty remains with respect to the impact of inflation, supply chain dynamics and how consumer spending will evolve through the year," Home Depot's chief financial officer told analysts.

 

The company's stock, which was the Dow's best performer in 2021, has shed 24% so far in 2022. 

 

For Home Depot, the threat of inflation is threefold. If the Fed quickly increases interest rates to rein in price rises, it will push up the cost of taking out a mortgage, and some people may think twice about buying a home. The company is also spending more to get products on its shelves, eating into margins.

 

And if it hikes prices for its customers too much, they may spend less.

 

"Most people are still fairly committed to spending on their homes, but the number of projects they want to undertake and the amount of money they are prepared to commit to home improvement going forward is less certain than it was a year ago," said Neil Saunders, managing director of GlobalData.