In this issue of the peel:

• You’re welcome. Apparently, the housing market had to wait until I signed the documents before allowing rates to fall. Either way, some great news in the most important asset class for American consumers gives us hope for housing.

• A surprise profit from Under Armour led to a much better earnings day than its closest competitor had a few weeks ago. Eli Lilly’s weight loss drugs led to fat gains, while Bumble struggles to monetize the love lives of college students.

• Housing isn’t the only thing changing when it comes to living in the U.S. Certain states and cities are growing even faster than home prices, while (former) residents of other locations can’t escape fast enough.

Market Snapshot

Banana Bits

• Lower-than-expected jobless claims fuel market gains as the number of Americans seeking unemployment benefits drops by most in almost a year. 

• Elon Musk’s “X vs Everybody” lawsuit is already causing changes in the global advertising market.

• TKO Group—owners of the UFC and WWE—hit an all-time high after a solid second quarter.

• The % of listed homes that have experienced a price drop is at an all-time high.

• The first Trump/Harris debate is scheduled… provided neither of them falls out of the coconut tree beforehand.

The Daily Poll

Previous Poll:

During non-work related travel, which would you stay in?

An Airbnb: 31.3% / A hotel: 33.5% / A Vrbo: 19.5% / Something else (write-in): 15.7%

Macro Monkey Says

Interest Rises As Rates Fall

Google searches for “how to refinance my home” are set to rise almost as much as Nvidia shares after last week's dive in mortgage rates.

Clearly, Freddie Mac heard that I just signed the financing papers for my house, locking in a steep rate of 7.125%, making me consider finding a side hustle.

Now that I’ve signed, it’s time to lower rates. It’s okay—you don’t have to call me a hero or anything, but if you want to help, look out for the newest OF model, “DailyRevealed.”

For those of you still in the market, congrats on timing it right. Let’s get into it.

The Numbers

The Federal Home Loan Mortgage Corp. (a.k.a “Freddie Mac,” for some reason) released data yesterday showing mortgage rates at their lowest level since May 2023.

We can all get behind falling mortgage rates, especially in this market.

If this decline holds up—and it isn’t just Freddie Mac giving me the middle finger—lower rates could very likely be the fuel needed to drive increased activity in the housing market.

The double whammy of record home prices and decades-long highs in mortgage rates has priced buyers out of the market. Would-be sellers have been “trapped” in their current homes because they hesitate to move and double their interest rate.

So, it’s no surprise that 2023 saw the lowest number of home sales since 1995, 3-years before Monica Lewinsky became a household name.

Sales have picked up marginally in 2024, but because the housing market moves slowly, home listings can give us a better sense of the market’s direction.

In July, active listings sat at 894,273, more than double the trough level in February 2022 and up 38.2% since July 2023.

We don’t have official data on July’s New Residential Construction just yet, but the first half of 2024 saw a much-needed uptick in new housing supply—it seems like builders finally decided to get back to work after a long break since the housing crisis in 2007.

That was largely triggered by the rapid increase in home prices brought on by the pandemic, causing homebuilders to cash in by actually building homes. Now, the monthly supply of new and existing homes is near and at record highs.

However, don’t think that a rush in supply will be enough to make housing affordable.

In June (latest available data), the median sale price of new and existing homes set yet another fresh all-time high at ~$442.41k, per Redfin. 

If the fastest rate hiking cycle in history and subsequent explosion in housing supply weren’t and haven’t been enough to curtail price appreciation, demand for these homes must be absolutely booming.

As we discussed yesterday, the rise in mortgage applications is a decent proxy for housing demand, but with the growth in cash offers and other forms of financing seen in recent years, it’s not necessarily a great indicator. Prices, on the other hand, are.

The Takeaway?

In addition to remembering to thank me for my service, there are three things to keep in mind:

• With mortgage rates setting a 15-month low and listings continuing to rise, housing market activity should continue to increase for the foreseeable future.

• Affordability remains a challenge because of the enormous demand for homes, driven by retiring boomers and first-time millennial and Gen Z buyers.

• If increased activity holds up, this is a great sign for the U.S. economy.

Homes are most Americans' largest asset. More availability means more wealth creation and lower monthly rates mean more money can be donated to the economy through other spending categories.

As great as this is for the economy, nobody appreciates it more than Zillow.

Shares soared 18.3% on earnings that blew past analyst estimates on 13% revenue growth and a 42% jump in mortgage revenue. This is one of our largest long-term holdings in WSO Alpha, so make sure you sign up to join us on the next pop.

What's Ripe

Under Armour (UA) 18.34%

• Apparently defecting to the British by spelling armor as “Armour,” analysts described the company’s report the same way most people describe a visit to London—“better than feared.”

• A surprise profit of $0.01/sh vs the $0.08/sh loss expected lifted shares along with a slight revenue beat, delivering $1.18bn vs estimates for $1.15bn.

• Sales still fell 10%, ironically justifying their costly plan to regain relevance. Under Armour is taking notes from Nike to do so… but they might wanna rethink that after Nike’s last earnings call.

Eli Lilly (LLY) 9.48%

• The world’s largest healthcare firm is definitely not taking its own weight loss drugs as earnings registered some fat growth. Novo Nordisk should take notes.

• Lily’s Mounjaro diabetes drug and its weight-loss injection Zepbound carried revenue to an easy beat and caused the firm to jack up guidance by 6.7%.

• Ozempic and Wegovy maker Novo Nordisk tanked on earnings mostly due to a shortage of Wegovy in the U.S. Lily ate Novo’s lunch by meeting that demand.

What's Rotten

Bumble (BMBL) 29.16%

• The third-tier and least-checked dating app for all you young, hot people out there tanked after earnings. Love is in the air but harder to monetize.

• Revenue grew 3% YoY to $268.6mn, missing estimates by 1.6%. Like users' photos, earnings looked much hotter, beating estimates as net margin quadrupled to 14%.

• Bumble’s paid users grew by 15%, but ARPU fell by 8.6%. Guidance was weaker than expected, killing shares, while Tinder and Hinge are going strong.

Warner Bros Discovery (WBD) 8.95%

• Someone needs to drug test CEO David Zaslav after he said he’s “extremely pleased” with Q2 despite his firm losing more money than it made in revenue.

• WBD reported $9.7bn in revenue and a $10bn loss for the quarter. Obviously, both missed estimates, with sales down 6% YoY and free cash flow tanking 43%.

• The borderline criminal loss is due to a $9.1bn network impairment charge from lower odds of sports rights renewals, like the NBA. They’re lucky they own HBO.

Thought Banana

State of the Movers

We all have to make a difficult decision about where to live. Do you want to stay near family, or do you want to have an enjoyable life?

Now, if you’re born somewhere where the weather doesn’t cause you to need a prescription for Prozac, maybe it’s an easier call.

But let’s check out how Americans have made this decision in recent years. Spoiler alert: enjoyable lives seem to be winning.

What Happened?

It turns out that the rush away from crowded cities and high taxes wasn’t just a pandemic phenomenon.

As linked in yesterday’s Banana Bits, it’s been harder for California and New York to keep residents living there than it is for a high school to make graduating seniors take a calculus test.

The above data goes only through 2023, but luckily, the company on the short side of our housing spread trade has more recent data.

According to Redfin, the exact same trend has continued in 2024.

Drilling down beyond the state level reveals more interesting data, however. For example, California claimed both the #1 most moved-to and most moved-from cities in the U.S. during the second quarter of 2024. According to Redfin…

• The 5 Most Moved-To Cities were:

  • Sacramento, CA (net inflow of +6,900)

  • Sarasota, FL (+4,800)

  • Phoenix, AZ (+4,400)

  • Cape Coral, FL, and (+4,400)

  • Myrtle Beach, SC (+4,400)

• And the 5 Most Moved From Cities were:

  • Los Angeles, CA (net outflows of -36,500)

  • New York, NY (-32,300)

  • San Francisco (-23,300)

  • Seattle, WA (-19,600)

  • Washington, D.C. (-14,900)

The Takeaway?

It appears that it’s less about seeking warmth and sunshine and more about seeking space to live in.

Moreover, the trend of relocating to lower-tax jurisdictions is still alive and well.

Lastly, the U.S. rental population is growing at 3x the speed of the housing market, so the majority of these movers are likely to be renters, meaning they won’t necessarily stay long-term.

Regardless, population growth carries with it economic growth. Keep that in mind in your search to find a job standing near the biggest pile of money you can find.

The Big Question: Is this a long-term trend, or will we see a return to California and New York dominating population growth? 

Banana Brain Teaser

Previous

A certain bridge is 4,024 feet long. Approximately how many minutes does it take to cross this bridge at a constant speed of 20 miles per hour? (1 mile = 5,280 feet)

Answer: 2

Today

Each machine at a toy factory assembles a certain kind of toy at a constant rate of one toy every 3 minutes. If 40% of the machines at the factory are to be replaced by new machines that assemble this kind of toy at a constant rate of one toy every 2 minutes, what will be the percentage increase in the number of toys assembled in 1 hour by all the machines at the factory, working at their constant rates?

Send your guesses to [email protected]

How Would You Rate Today's Peel?

Happy Investing,
David, Vyom, Jasper, Ankit, & Patrick

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