Last-minute spending surge lifts U.S. holiday shopping season A jump in consumer spending in the final stretch of December significantly offset a slow start to the U.S. holiday shopping season, and is likely to help many retailers beat sales forecasts, industry research groups said on Tuesday.
(…) Brick-and-mortar sales in the week ending Dec. 24 rose 6.5 percent year-over-year after having fallen for the rest of the month, according to data from analytics firm RetailNext.
Strong demand for furniture, home furnishings and men’s apparel from the start of November through Christmas Eve pushed U.S. retail sales up 4 percent, higher than the previously expected 3.8 percent, according to data from MasterCard’s holiday spending report, also released on Tuesday. The report, which tracks spending by combining sales activity in MasterCard’s payments network with estimates of cash and other payment forms, offers an early look into how the holiday season shaped up. (…)
Craig Johnson, president of consultancy Customer Growth Partners, told Reuters that he now estimates sales growth of 4.9 percent in November and December, up from his initial estimate of 4.1 percent. (…)
U.S. Home Prices Climbed Sharply in October The home-price index rose 5.6% in the 12 months ended in October, with the market showing no signs of slowing after setting a record a month earlier.
The S&P CoreLogic Case-Shiller Indices, which covers the entire nation, rose 5.6% in the 12 months ended in October, up from the 5.4% increase reported in September.
The 10-city index gained 4.3%, up from 4.2% in September. The 20-city index gained 5.1% year over year, up slightly from a 5% increase in September.
The hottest markets in the country remain concentrated in the Northwest, as many buyers priced out of the Silicon Valley area flee to secondary tech hubs. Seattle reported a 10.7% increase, Portland reported a 10.3% year-over-year gain, and Denver had an 8.3% increase in home prices. (…)
After seasonal adjustment, the national index rose 0.9% month over month. The 10-city index and the 20-city index each rose 0.6%.
After seasonal adjustment, all 20 cities saw prices rise in October.
Housing Gains Highlight Economic Divide The volatile housing market is widening the divide between pricey urban and coastal areas and more affordable inland regions, creating large swaths of winners and losers based largely on geography.
(…) A study by Weiss Analytics, a housing-data firm, found homes in ZIP Codes where the median value is $500,000 to $1 million are now worth 103% more than they were 16 years ago, before a boom in the mid-2000s was followed by the worst housing crash since the Great Depression. Home prices in those areas have shot up 39% since the bust. (…)
In ZIP Codes where the median home was worth $100,000 to $150,000, prices have risen 16% since the trough of the market and are now worth 24% more than they were in 2000. (…)
In more rural areas outside major cities, demand for housing has been flat, with little new supply and more people leaving for larger cities and coastal regions.
The demand for lower-priced homes was also weakened by the tightening of lending standards following the foreclosure crisis, which made it more difficult for buyers with imperfect credit scores or lower incomes to qualify for mortgages. (…)
House Flipping Makes Comeback as Home Prices Rise The number of investors who flipped a house in the first nine months of 2016 reached the highest level since 2007, and about one-third of the deals were financed with debt, a percentage not seen in eight years.
Real-Estate Industry Braces for Tax Upheaval Many in the real-estate industry are expressing concern about the seismic changes in the tax code that could be ushered in by President-elect Trump for all businesses, including real estate.
(…) real-estate executives say a sweeping blueprint for overhauling most of U.S. tax law made in June by House Republicans appears to have a better chance with a Republican in the Oval Office. The plan appears to be gaining traction, according to real-estate industry lobbyists who have been having extensive behind-the-scenes discussions about what it would mean for real estate.
“The House is ready to roll,” said Jeffrey DeBoer, chief executive of the Real Estate Roundtable.
Among other things, the GOP blueprint calls for the elimination of the deduction for state and local property tax. Industry executives also worry the plan could severely cripple the mortgage interest deduction—long considered a sacred cow of U.S. tax policy.
The blueprint proposal released in June said it would preserve the mortgage interest deduction. But it also would nearly double the standard deduction that taxpayers could receive, thus eliminating most itemized deductions. Mr. Trump proposed an even larger standard deduction.
“Because of the other provisions included in the new tax system, far fewer taxpayers will choose to itemize deductions,” says the Better Way proposal released in June.
The upshot, real-estate industry leaders worry, would be that fewer people would be incentivized to purchase homes, which would weigh on demand and possibly the broader economy.
The House proposal also would eliminate for all businesses the current deduction for debt interest payments. Leverage has long played a major role in most acquisitions of office buildings, stores, hotels and other commercial property in part because interest payments are tax deductible.
Another sea change in commercial real estate would be in the way the House blueprint would affect depreciation. Tax law currently allows buyers of rental apartment buildings to depreciate the cost over 27.5 years and other commercial real estate over 39 years.
The House plan would eliminate depreciation for real-estate companies as well as other businesses. Instead, buyers of real estate would be able to treat the entire cost of buying a property—excluding land—as a business expense that could be used to reduce income. If a buyer didn’t have enough income in the year they bought the building, they could be able to carry the expense forward into future years as a net operating loss.
Real-estate industry officials describe those proposals as “radical.” They are concerned that, if not handled right, changes in tax law could warp the economics behind real estate, creating upheaval in the industry. (…)
Dollar’s Rise Threatens Manufacturing Recovery A strengthening dollar is re-emerging as a threat to U.S. manufacturers, endangering the profits of some companies and complicating Donald Trump’s drive to boost factory employment.
(…) Ben Herzon, senior economist at Macroeconomic Advisers, an independent economic forecasting firm, conducted a simulation for The Wall Street Journal to illustrate how a further 10% increase in the strength of the dollar would ripple through the U.S. economy.
Over the next three years, companies would gradually adjust, by among other things boosting capacity at foreign plants while reducing at home, changing their supply chain or increasing the use of automation.
If the dollar doesn’t strengthen further, inflation-adjusted gross domestic product would cumulatively rise by 6.3% over the next three years. If it strengthens by a further 10%, that growth would be 1.8 percentage points lower, or 4.5%, according to Macroeconomic Advisers’ simulation.
The pain of a further 10% dollar rise would be especially concentrated in U.S. factories. Manufacturing production would be 3.6 percentage points lower under a strong dollar, inflation-adjusted imports would be 3.6 percentage points higher, and real exports from the U.S. to the rest of the world would be 6.2 percentage points lower.
Initially, U.S. consumers would stand to benefit by paying lower prices for imported goods.
“It’s good for consumers, as long as they’re still working,” said Mr. Herzon. As time goes on, this benefit will also be offset by the job loss in the manufacturing sector, he said.
Corporates lead surge to record $6.6tn debt issuance Borrowing levels beat 2006 mark but rising US rates set to cool demand
(…) Companies accounted for more than half of the $6.62tn of debt issued, underlining the extent to which negative interest-rate policies adopted by the European Central Bank and the Bank of Japan, as well as a cautious Federal Reserve, encouraged the corporate world to increase its leverage.
Corporate bond sales climbed 8 per cent year on year to $3.6tn, led by blockbuster $10bn-plus deals to finance large mergers and acquisitions.
The remaining debt included sovereign bonds sold through bank syndication, US and international agencies, mortgage-backed securities and covered bonds. The figures exclude sovereign debt sold at regular auction. (…)