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3 Things Under the Radar This Week

Investing.com - Here’s a look at three things that were under the radar this past week.

1. The Canary in the Housing Coalmine

It was a tough week for the housing market.

December housing starts plunged more than 11% to a level not seen since September 2016, according to a government report released this week.

The S&P Case-Shiller home price index rose less than expected, while Home Depot (NYSE:HD) missed on profit expectations and forecast slowing sales.

But investors may have missed an even more ominous sign. The Economic Cycle Research Institute said this week its leading measure of home prices -- which it says “nailed” the 2006 housing bust in real time -- indicates now “there is a real risk prices will actually fall.”

The graph of growth of the ECRI’s U.S. leading home price index was already pointing down when it was last publicly released in October and indicated the worst home price outlook since 2009.

The “downturn was already quite dramatic (in October), and since then it has fallen off a cliff,” the ECRI said. “If home prices do fall nationally -- joining recent drops on the west coast and a handful of other states -- the ramifications for the economy at large could be serious.”

2. Delinquent Farm Loans at 9-Year High

As the stock market hangs on every word about the U.S.-China trade war, the impact of the battle is surfacing in the U.S. economy.

The latest figures from the Agriculture Department’s Farm Service Agency (FSA) -- a lender of last resort to riskier agricultural borrowers -- showed the delinquency for FSA direct loans rose to 19.4% in January from 16.5% a year earlier. That's the highest default rate in at least eight years.

At the heart of the problem is falling crop prices. President Donald Trump's trade war with China has not been the root of the demise, but it has accelerated the decline.

U.S. farmers, considered a Trump political stronghold, found themselves in China's crosshairs as the trade war intensified last year.

Exports to China have fallen more than 90% in the 2018-2019 crop year, according to USDA data, prompting more famers to turn to banks for financial lifelines in the form of short-term loans and debt refinancing.

The amount of debt held by America’s farmers has risen to $409 billion from $385 billion last year, levels not seen since the 1980s, U.S. Agriculture Secretary Sonny Perdue said on Wednesday.

But many have suggested that steady farmland real estate prices remain the key to keeping farmer debt-to-asset levels managable, warning that a drop in land prices would push more farmers to the brink of bankruptcy.

So far, there's little to a suggest such a decline.

“You still see high-quality farmland selling for higher prices ... Just like the farm bankruptcies, (the) farmland price story is similar: Some states have seen an increase, some see a decrease,” USDA Chief Economist Robert Johansson said.

3. Mall Shoppers Cutting Back on Burgers

The death of the American shopping mall has been almost an annual prediction in the financial markets and the theory has only gained momentum in the face of increasing dominance by Amazon (NASDAQ:AMZN).

While dwindling in numbers, malls have shown resilience, though, especially mega-malls like the Mall of America in Minnesota or the King of Prussia Mall in Pennsylvania.

And the latest data showed that the number of empty spaces in malls may be stabilizing.

Mall vacancies were up in the fourth quarter, but by just 10.2%, confounding forecasts for a surge in the wake of closures from Sears (OTC:SHLDQ) and Kmart.

“(T)he doomsday prognostications proved to be overblown,” commercial real estate research provider Reis said in its report.

But Red Robin Gourmet Burgers' (NASDAQ:RRGB) earnings report this week raised a red flag about any confidence in a strong mall resurgence.

The fast-casual chain singled out malls as a specific weakness in its latest quarter and 2018.

“2018 was a very challenging sales year and the fourth quarter continued that trend, buoyed somewhat by better than expected growth in our new catering business, but dragged down by weakness at in-line mall locations,” the company said.

What may be particularly worrying for landlords is that the progression of the mall from money-losing legacy stores like Sears and Toys ‘R’ Us was expected to happen with franchises that resonate more like Shake Shack (NYSE:SHAK). But Red Robin, which would seem to fit into that new category, can't find any traction there.

-- Written by Yasin Ebrahim and Kim Khan

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