On the real estate front, buying a house typically involves a good deal of personal contact, from viewing the home to making appraisals and inspections to sitting around a table signing documents at a closing.
Now, with most of the country in lockdown and stay-at-home orders blanketing the nation, much of that activity has halted.
Real estate agents are rushing to close deals that were pending. Instead of closing the sale in an attorney’s or real estate office, some closings reportedly have happened in parking lots with documents passing between open car windows and people not using each other’s pens.
As an alternative, notarizing closing documents online is becoming commonplace. Notarize, a company offering the service, expects to see the $10 billion in transactions it processed last year explode to $100 billion this year.
“We’re just trying to get the properties we have under contract across the finish line,” said Leslie Turner, a real estate agent in Charleston, SC.
Pending home sales rose 2.4 percent from January to February, yet Turner now said, “everything’s just stopped.” For example, Manhattan’s condo market spiked early this year but now it has virtually shut down, observers say.
Many prospective buyers are postponing in-person tours until fears of COVID-19 infection abate. As many as three-quarters of North America’s home inspectors have stopped working, unwilling to venture into strangers’ homes, according to the International Association of Certified Home Inspectors.
For the duration of the pandemic panic, the real estate business has a different focus, said California agent Kelli Griggs – “rescuing deals versus trying to procure them.”
TREND FORECAST: It is reported that homeowners are struggling to halt payments that were due 1 April, waiting on the phone for hours to reach mortgage departments.
Now, with the high times for spring season for real estate kicking off, mortgage applications to buy a home plummeted 24 percent.
We forecast a home/rental/condominium/commercial real estate collapse of Panic of ’08 levels. The retreat from congested, high-price urban centers to small cites in more rural areas will maintain price levels in those areas.
Ad Industry Implodes
Advertising sales are being dragged down with the rest of the economy.
Magna Global, a consultant to major ad agencies, has slashed its 2020 forecast for U.S. ad sales this year from a 6.6 percent increase to a 2.8 percent decline.
It expects TV ad sales to lose 13 percent this year; in December it had forecast only a 0.4 percent drop. Magna also thinks online ad sales will grow 3.9 percent in 2020, no longer the 11 percent it had forecast earlier.
Radio stations can expect ad sales to be off by 14 percent and print ads to plummet 25 percent, Magna said.
Retailers spent $16.9 billion on ads in 2019, with vehicle makers laying out $12.3 billion, according to Kantar, a market analysis firm. Travel and tourism paid for $7.7 billion for ads and restaurants invested $6.2 billion.
TREND FORECAST: While TV viewership is spiking, add revenue is plunging. When hard times hit, ads are one of the first expenses to be cut.
Also, with the coronavirus creating a new atmosphere of social distancing and fear, many advertisements will seem non-essential and inappropriate. In addition, the tone, style, and message of advertisement to attract buyers must be radically altered to appeal to a new emotionally mindset.
Commodity Futures Plunge, Signaling Bleak Summer for Industry
The price of lumber in futures contracts has come down 41 percent since 20 February, from a high above $465 per thousand board feet to $268 on 27 March.
The price plunge signals an end to what had been the beginning of a housing boom, with construction under way on more houses than any time since 2006.
Now, the price drop indicates that builders will lose the spring building season, typically the year’s busiest for housing starts.
“There is zero chance that potential home buyers are waking up tomorrow and saying, ‘Let’s go buy a new house’,” said Stinson Dean, a Kansas lumber trader.
In late March, as lumber orders dwindled, Dean’s bank withdrew its previous approval of an expansion loan for his business.
The Canadian Imperial Bank of Commerce estimated that North American lumber production was being scaled back by 15 to 25 percent. That forecast was followed by lumber giant Weyerhauser announcing it was cutting back production on a range of products by the same proportion.
On 26 March, Catchmark Timber Trust, which harvests and sells trees, told investors that a 50-percent reduction in log sales would cut its revenue by $300,000 a week.
The trust noted one bright spot: sales of wood pulp, which is used to make toilet paper, among other things, have perked up.
Nothing is perky in the copper market, which has seen its worst start to a year in more than three decades.
Prices for copper contracts for April delivery have come down 20 percent this year; as of 30 March, spot prices were $4,763 per metric ton, off 21 percent.
When copper prices linger between $4,600 and $4,800, as much as a quarter of the world’s copper mines lose money and owners are likely to shut them down, according to Citigroup analysts.
Much of the world’s copper ore is mined in South Africa and Asia, areas badly affected by the virus and politicians’ reactions to it.
Peru, the world’s second-largest copper ore producer, has declared a state of emergency, curtailing mining. The action forced minerals giant Freeport McMoran to stop producing copper.
The company’s share value has dropped 49 percent this year. Copper makers BHP Group and Rio Tinto have seen share prices shrink 26 and 17 percent, respectively.
TRENDPOST: Since cooper is used in heavy industry to high tech, as go copper prices, so goes the global economy. While prices have risen a bit, they are still at four-year lows.
For those watching, for example, equity, gold, and oil prices, we suggest also monitoring cooper, since “Dr. Copper” accurately diagnoses the economic climate.
Bye, Bye Junk Bonds
Investors have been fleeing junk bonds en masse faster than at any time in history.
The massive flight has been driven by the specter of companies and entire industries facing weeks, and perhaps months, without revenue as the global economic shutdown continues.
Airlines, gaming companies, oil producers, and retailers are just a few of the businesses seeing their bonds plunge in value.
About 43 percent of bonds tracked in a key global index of $2.1 trillion in junk bonds are now considered “distressed,” meaning the bonds yields’ are 10 points or more above those of U.S. treasuries. Three weeks ago, the number was below 450.
In Asia, dollar-denominated junk bonds are trading at an average of 15 points above U.S. treasuries’ yields.
Corporations had come to depend on years of artificially cheap money enabled by central banks’ artificially low interest rates. Thousands of businesses borrowed heavily to fund expansions, acquisitions, and other financial adventures, including buying their own stocks to inflate perceptions of the companies’ value.
Because central banks’ economic rescue plans have largely offered no help to the junk bond market, many analysts expect the sell-off to continue.
“When everyone has the same thought at the same time,” said Carlos Mendez, managing partner at Crayhill Capital Management, “you start this wave and it’s very hard to break once it starts.”
Disney Furloughs U.S. Workers Across All Divisions
The Walt Disney Co. is laying off “all unessential” workers in all U.S. divisions, starting 19 April.
The number of employees affected wasn’t given.
All furloughed employees will retain their Disney health insurance benefits, the company said.
Disney’s theme parks have been closed for weeks due to orders regarding social distancing, and the company said it will keep them closed indefinitely. With movie theaters also shuttered, Disney also has put off releasing the “Mulan” and “Black Widow” animated films.
Disney’s stock was trading above $140 in mid-February, but it now has lost a third of its value and was priced slightly below $100 on 6 April.
Walgreen’s Slump May Presage Weak Retail Recovery
After strong sales as the coronavirus invaded the U.S. and UK, Walgreen’s Boots Alliance Inc. saw the curve reverse and sales plunge during the last week of March.
The Illinois-based company reported $35.8 billion in sales in the quarter ending February 29, up from $34.5 billion in the same quarter a year previous.
Sales fell off late in March as more and more states implemented stay-at-home orders. Beauty products, seasonal, and discretionary items were hit hardest; sales rose slightly for medicines and staple items.
Walgreen’s is restructuring but redirected funds from that effort to pay bonuses to store employees and increase home delivery services. In the UK, where the company operates the Boots drug store chain, the company has shut down most of its 600 optical centers.
PUBLISHER’S NOTE: As one of a relatively few stores still open, Walgreen’s weak sales of optional items hints at a weak retail recovery when lockdowns are lifted. Massive unemployment and lingering fear of contagion could keep shoppers away even when politicians allow them to return.
Hedge Fund Bans Withdrawals
EJF Capital, a $7-billion hedge fund based in Virginia, has banned clients from taking any money out of its $2.5-billion Debt Opportunities Fund.
The reason, according to founder Emanuel Friedman, was to prevent the fund from having to sell assets when prices are in a tailspin and markets are “nonfunctioning.”
The fund had received sell orders from clients for 31 March, which totaled about 6 percent of the fund’s assets.
EJF Capital had dropped about 15 percent in value from 1 March through 27 March.
Hedge funds are different from mutual funds in that clients can only withdraw funds during predetermined time periods and often must request withdrawals in advance to ensure that the funds have cash on hand to fill the orders.
PUBLISHER’S NOTE: That such extreme action is taken indicates the depth and severity of financial losses hedge funds and private equity are experiencing.
While hedge fund agreements do make it clear in their contract that withdrawal restrictions apply, for investors who are facing financial crisis and require the money to cover bad debts and needed expenses, those requirements are now being questioned.
Restaurant Chain May Permanently Shut Half its Stores
Craftworks Holdings, a company that owns restaurant chains Rock Bottom, Logan’s Roadhouse, Old Chicago Pizza, and Ragtime Tavern, among others, has told a bankruptcy court it plans to permanently close as many as half of its 300 sites because of economic damage caused by the current economic crisis.
In March, it shut all its restaurants and laid off 18,000 employees. The company has permanently closed 37 restaurants in recent weeks.
Craftworks, which filed for Chapter 11 bankruptcy in March, is seeking $4 million in “life support” financing to operate over the next six weeks after the Fortress Investment Group withdrew its $138-million offer to buy the company.
Virus Infects Airbnb
Airbnb, the site that enables homeowners to rent rooms or cottages to travelers, has lowered its estimate of the company’s value by 16 percent to $26 billion.
The reduced estimate follows a drop in bookings by as much as 90 percent in some areas during the current virus scare. Travelers are heeding stay-at-home orders, and Airbnb site owners are loathe to invite strangers into their properties or to have to deep-clean rooms after guests leave.
Airbnb considered itself to be worth $31 billion after closing a $1-billion funding deal in September 2017. The company may have been worth more than $40 billion at the end of 2019, the Financial Times reported, based on the value of private stock transactions.
Executives at Airbnb have spoken with potential investors about another influx of cash and recently talked with bankers about expanding its $1-billion credit line.
The company also has temporarily canceled all advertising, which saves about $800 million.
By next January, Airbnb expects its business to return to 2019 levels, when it collected $4.8 billion in revenue, a 35-percent gain from the year before, according to company officials.
The company reported losing $322 million, however, during the first nine months of 2019, according to the Wall Street Journal. Airbnb executives attribute the loss to investments in safety and system upgrades.
Airbnb isn’t the only lodging business to see its bookings, and subsequent market valuation, fall. Hilton Worldwide Holdings’ share price is down 55 percent, Expedia 44 percent, and Booking.com 37 percent since the pandemic began.
TRENDPOST: Studies have shown that renting an Airbnb can be 20 to 50 percent cheaper than staying in a hotel. That means an increase in Airbnb bookings could be an early signal that the travel market is beginning to rebound.
