Thoughts From The Divide – Coronavirus Déjà vu and Housing

“It is not a matter of if, but a question of when”

The corona virus is making headlines once again, once again, and while Trump has declared that “The Coronavirus is very much under control in the USA”, we are reminded of Mission Accomplished and are watching several developments. First, as new cases are being reported in Switzerland, Austria, and Croatia, the virus’s spread in Europe may challenge the open borders of the Schengen Area. As the Global Times somewhat ironically reported, with coronavirus coursing through Italy, nearby Austria temporarily blocked a train at the border. An article from the New York Times also discussed the cases in Italy, but offered some encouraging words. Quoting Giuseppe Conte, Prime Minister of Italy, “the surge of Italian cases only reflected Italy’s casting a wider net in terms of testing”. Second, as Axios reported today, the IOC is “looking at a cancellation” of the Tokyo Olympics if the virus is not contained. While the current “indications are … business as usual”, the IOC will work with the WHO before making a final decision. IOC member Dick Pound assured athletes, “keep focused on your sport and be sure that the IOC is not going to send you into a pandemic situation”. Finally, contrary to Trump’s tweet, the CDC has “warned Americans to prepare for a coronavirus outbreak”. Preparation may not be able to overcome a shortage of masks or drug inventory issues if supply chain problems materialize, but, hopefully, forewarned is forearmed.

“Revved-Up Home Market”

While the news around the coronavirus has been less than rosy, recent data on the US housing market has been surprisingly chipper. In an article on Builder Confidence, Eye on Housing’s Robert Dietz highlighted, “Steady job growth, rising wages and low interest rates are fueling housing demand in a market that lacks inventory, particularly at the entry-level”. Recent data bears out this optimism. While total housing starts were down month on month, total starts are up 21.4% compared to January of 2019, which was, admittedly, a “housing soft patch”, according to another article from Eye on Housing. Permits also improved YoY, registering “a 20.2 percent gain compared to a year ago”. Lastly, on the anecdotal side, Home Depot’s earnings rose on the “revved-up” housing market and analysts expect the retailer to “continue to capitalize” on the market’s strength. One caveat… As Ted Decker, a Home Depot VP, explained on a conference call, “the retailer’s forecast doesn’t include any potential repercussions from the coronavirus outbreak”.

P.S. JP Morgan is planning to use the Fed’s “emergency lending facility in an exercise designed to break the stigma”. Nominal purpose side, we’ll watch what they do.