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Morning Brief: The housing market tells the whole story

Yahoo Finance’s Myles Udland, Julie Hyman and Brian Sozzi break down how the housing market is faring amid pandemic.

Video Transcript

JULIE HYMAN: Stocks showing modest gains on this Thursday. That's despite that jobless claims number that we got, 965,000 claims last week. So considerably worse than estimated. You know, and, guys, we keep talking about the sort of dichotomy, if you will, between things like economic numbers and the market.

One of the other ongoing trends that we keep exploring is the growing gap, perhaps, between the suburbs and urban environments. And Myles, this is something you've been exploring pretty consistently in your Morning Brief newsletter also. You talked about it through the lens of Shake Shack the other day and how fast food is sort of addressing this change.

And then in this morning's newsletter, you wrote about it through the lens of housing. We got KB home numbers recently that were big. We're getting some new rental numbers as well from New York City, I believe. So it's an interesting trend to continue to watch. I'm curious how long we're going to continue to see it at this same pace.

MYLES UDLAND: Yeah, so the way that we came at it today was the Beige Book yesterday. And so the Beige Book isn't going to be-- you know, for those who don't know, Beige Book is the Fed's report for each of the 12 districts. It's an anecdotal report, it forms the basis, essentially, of the conversation that Fed presidents are going to have in two weeks' time at the next Fed meeting.

So the Beige Book broke it down from residential and commercial real estate. And I think it's fair to say residential can be broadly construed as more suburban, and commercial real estate tends to be more focused in urban cores. And we see the split where, you know, one contact in the Boston Fed's district said there was a frenzy in the residential real estate market.

But the commercial side, and this was across districts, it was this fear that something worse is going to happen. There was, you know, comments like, not a lot of appetite for new leases or renewals happening at lower rate, companies want to renew their lease but with less square footage taken up. And so this is-- whether it's office space, whether it's retail space, just not a lot of desire by businesses to make any kind of commitment to having any kind of presence where they had previously been. Again, more often in an urban core.

Interestingly within commercial real estate, of course, we see that warehousing remains quite strong. Amazon certainly a big part of that. We see online grocery delivery, FreshDirect, another example, they're going to need a lot of, you know, warehouse space, so on and so forth. But, again, this divide is interesting, Julie, because in the residential side, we see it now, right?

We see everything is going crazy right now, very quick to respond. KB home, best fourth quarter since 2005, also known as the eve of the housing bubble. On the commercial side, the comments were a lot more, I'm worried about what is going to happen next. I don't see a lot of demand for the next year or 18 months in a way I would have expected.

And so the immediate fear, you know, flagged early in the pandemic is that commercial rents and commercial real estate is just going to get absolutely crushed by the pandemic. But, you know, those leases and those agreements, those take longer. That's not buying a house. And I know that when you buy a house, it seems like it's such a big endeavor.

And it is, but, you know, multiply that by 10 or 20 times and that's what it's like for a business to move around its footprint. And so I think it's going to be-- there's going to be a long tail on those kind of impacts on what businesses want to do with their footprint. And in cities and the associated services, you know, think about where we would have gone to get our coffee, buy our lunch, you know, take our dry cleaning that was at the office, so on and so forth, all those services are at a stop right now, basically.

So I still think there's a long tail on the city's lagging more suburban type environments on this crisis. And I think it's going to be-- I think it's going to be an even bigger story as we get through 2021, where some areas are not just normal, they're better than normal, they're above 2019 levels. And I just don't see that from New York City, honestly, you know, living here and kind of just seeing what's happening. It was fine in the summer, but, man, it's been a depressing winter.

BRIAN SOZZI: Myles, isn't this a major structural impediment to recovery? If I had moved from a one bedroom in the city out to suburbia, I'm locked into, what, a 15-year 30-year mortgage? That means even as I do get vaccinated, I'm not going back to the city because I'm locked down financially in suburbia.

MYLES UDLAND: Yeah, I mean, on a housing level, sure. In some ways, you could almost say, though, Sozzi, that if normal times come back and you have to go to the office, that's better for the city than you even living there, right? Because you're coming in and out every day. You're buying lunch, you're spending money on the train ticket, you're getting a cab, you're getting the subway.

Like, it's the flow of people more so than the residents that the city depends on, especially here in New York City. And so most people, again, probably upwards of 90% of people in New York City, they haven't left. They're not going to leave. They live in New York City.

The impact of the city is that people are not coming in and out. People are not visiting. There is no daily grind here in New York anymore. That's the real impact. And so I think, look, Julie moved out to suburbia, I'm moving out there in a couple months. The point the city needs is for us to come back in every day. It doesn't matter where we really live.

I mean, it matters a little bit, but not that much. We need to be getting on the train and coming in and then, you know, working in the city for that impact to happen. And the other point too is if New York City is lagging, I don't see how the national economy is all of a sudden rip roaring, right? It's still the biggest city in the country, most important economic city in the country.

So that's another story, I guess. It's just probably a back half of '21 stories as we talk about it.

JULIE HYMAN: Yeah, I mean, one final point I would make, if rents are going down, people are going to come back to the city, right? People always want to live in New York City.