America’s Housing Affordability Crisis… Plus Lululemon Downward Dog 5/21/24

0:02Live from the Nasdaq market site in the heart of New York City's Times Square this is fast money. Here's what's on tap tonight. Housing headaches, the staggering new stat on home affordability and what it might mean for home builders even as mortgage rates are expected to pull back. Plus a real Lulu, Lemon, shares of the one-time athleisure darling at their lowest in over a year and down more than 35 percent from an all-time high hit less than six months ago. Can the stock find its zen or has it stretched past this limit? And later, Eli Lilly hits another a record high. Ethereum's ethereal rise on hopes of a new ETF.

0:36And we are counting down to what might be the biggest earnings report this quarter. What is at stake when NVIDIA delivers its results tomorrow? I'm Melissa Lee coming to you live from Studio B at the NASDAQ. On the desk tonight, Tim Seymour, Karen Feinerman, Steve Grasso, and Guy Adami. And we begin tonight with a staggering new stat. More than 100 million American households cannot afford to buy the newly built home, according to the National Association of Home Builders. That number has increased by more than$30 million over the last three years as home prices and mortgage rates have remained stubbornly high.

1:07This is we just got earnings results from high-end home builder Toll Brothers, which beat earnings and sales estimates and raised full-year delivery guidance. That stock right now is higher by a little bit over a percent. For more on both these stories, let's bring in CNBC's Diana Olek. Diana, first that popped in Toll. Yeah, I mean Toll did really well beat expectations, but I have to say Toll Brothers buyers are the high-end. They're not mortgage dependent. In fact, they've already said that 25 % of toll buyers buy in all cash. So even though mortgage rates went up during this quarter, you didn't see the effect that you may see on some of the other home builders.

1:40But you were talking about affordability. Let's get to that. When you combine higher home prices with higher mortgage rates, the sum total is a whole lot of pain for potential home buyers, especially those who want to buy new construction. So home prices overall nationally are 46 % higher than they were at the start of the pandemic in 2020. The average rate on the 30-year fixed is still stubbornly over 7 % after hitting a record low of 2.76 % at the start of 2021. Now, as a result, nearly 67 million American households can't afford a$250 ,000 home today. They just wouldn't qualify for the mortgage.

2:14A whopping 103 million can't afford the nation's median-priced newly built home, which is about $496 ,000, according to the NAHB. That is 82 % of American households. If you were to raise that price by just$1 ,000, an additional 106 ,000 buyers would be priced out. If you compare that back to the same metric in 2021 when rates were at record lows and home prices were lower, that 103 million drops to 75 million households unable to afford a new home. So nearly 30 million potential buyers have been priced out in just three years. The home builders have been buying down mortgage rates in order to get more buyers in the door, but that's eating into their margins.

2:56And Melissa, we did here from CEO Doug Yearley last quarter that they're not really answering to any buyers who want mortgage rate buy downs. They just want some of the added bonuses going into the fixings in the Toll Brothers house. Diana, in terms of the rate at which more homes would come onto the market from the existing home segment, what rate is that in general? Is that five? Is that six? I mean, how do we view that? Okay, so the total amount of homes on the market right now, it's about 40 % higher compared to last year, but still very low. And the rate of new listings is actually coming down.

3:32So we saw this kind of surge going into spring of more homes coming onto the market, and they just sat. Why did they sit? Because they're too expensive and nobody can afford them. But we're not getting more new listings now. And again, part of that is that rate lock-in, that when you're over 7 % and you have 2.75%, why would you sell? But in terms of, I mean, do people think 6 % is going to move a lot of homes? And we did see, Rates come down, I think, in the first quarter or the second quarter, sort of that area. Did we see more velocity in the market at that time? We did. We did. At the beginning of this year, when rates were around 6.5%, we did see an early surge.

4:07In fact, we thought the spring market was starting in January because people were really coming in. The trouble was there wasn't a lot on the market to buy. Then all the supply came into the market March and April, but that's when rates started shooting up again. And so a lot of that is now sitting. All right. Diana, thank you. Diana Olick in Washington for us. And I guess the question for us here tonight is, what do you do with the home builder trade? We're just off of highs in the sector. And so are we, you know, if we're looking at a Fed that's going to cut rates, that's probably the next move here at some point in time.

4:38Is the best behind the home builders? Are we sort of in a Goldilocks period here for this trade? Collectively, we like the home builders for a while. The last six months or so, it has me sort of scratching my head. I get it. I mean, people talk about valuation. They've been compelling. I don't even know if valuation matters in this space. I understand that interest rates matter. I think the thing that's going to matter most for the homebuilders is just my instinct is going to be the unemployment rate, which I do think is going to surprise people to the upside. I've thought that for a while as well incorrectly.

5:05But a lot of these revisions start to make their way in. It's a supply side thing. But people are going to move when they start losing jobs. Counterintuitively, I mean, this is going to sound crazy. The best thing for the supply side is probably a sort of a spike in the unemployment rate. I agree with that. I think the most important thing is a job. But but I also think the question you asked Diana, if we start to cut rates, I think people will start to nibble and maybe take out a mortgage and then they can always refinance. But they have to see they have to be sure that those rates have topped out and that they are coming in.

5:38Tall Brothers has outperformed. So if you look at D.H.I., they're spec builders. That was great during the pandemic. Not so much now. I would stay back from the trade. Yeah, I think it's a combination of the homebuilders are more profitable, even where they're picking up some of the margins. They just announced the gross margin of 28.2. This number's been getting better. I wonder if the wealth effect in stock markets at all-time highs and essentially household balance sheets never being better is also creating a little bit more of a frenzy. A lot of these folks who are cash buyers doesn't really matter, right?

6:07You don't have to apply for a mortgage. You're just lifting it off the top. But I also do think for those people that are out there in terms of actually going through a mortgage process, whether that's easier or harder, the dynamic here, I think it's certainly helping people. They have better balance sheets. I think if you see any deterioration in the stock market and ultimately in where we've seen housing prices, I think it's going to be self-feeding. I also think that a lot of these loans that no one's going to walk away from anytime soon have a shelf life. I mean, I realize a lot of people may be locked into 30 years.

6:35Good for you. That's probably for too long of an outlook for this show. But if you think about 10 ones and even five ones, five ones are pretty much toast. And I think if you think about the environment where the consumer hasn't really begun to weaken because the job market hasn't begun to weaken, that's going to happen, too. How much? We're all trying to handicap that. That's a really important point, I think. You know, it's so when do those what's the what's the life left on those loans? Do people wait to the very end? Maybe not quite the very end. But it's interesting, you know, in in the energy markets, the cure for higher oil prices is higher oil prices.

7:09That is not the cure here. That hasn't been helping. It's, you know, It's such an odd scenario where you have so much locked up inventory that just will not hit the market because people can't afford to leave their houses. But I've been thinking for a while the home builders had had enough of a run. It wasn't. But I mean, these numbers came out tonight. Those are very good. Guys friendly. I can just tell you that I haven't liked them. I've been wrong on this. I've been wrong on it for probably six to nine months because my view is when you don't have any velocity of trading, prices have to come down at some point.

7:40I still think that that's been the wrong. What's interesting, the dynamic, though, is that the home prices have not, the home values have not come in. Right, in relationship to the mortgage. Exactly. Usually it's inverse. Usually the mortgage rates go higher and home prices have to come down, and that has not been happening in this market. But that's why we asked, Diana, if we know that the next move for the Fed is going to be a rate cut at some point in time, maybe the end of the year, the beginning of next year, when do we start looking ahead to believe that there's going to be more velocity, especially on the existing home side, particularly when you factor in a 5-1 or a 10-1 arm, and those people are going to be coming off that, and they have to do something.

8:13They're even going to be paying up. And there's household formation that is happening. Right, and people do have to move at some point. So do you think ahead to that point, maybe six months out, seven months out, when that velocity starts happening once again? I mean, Diana mentioned six and a half, beginning of the year, there were homes being sold involved. Yeah, I feel like the stocks are discounted. They're trading as if that's going to happen. At least that's the moves that they've seen. But I totally get it. Now, what's interesting, I think, is the fact that look at Home Depot and Lowe's, effectively the same chart.

8:45Lowe's has traded a little bit better than Home Depot. With that said, they both made their all-time highs in December of 2021, which actually made sense at the time. If you think about what was going on, those stocks have not traded well now for the better part of three years on what's been a very good broader market. So I think there's a tell there in terms of everybody that needed to spend money. They basically did it. Now there's sort of this sideways action. And again, I'll come back to the unemployment rate. I mean, if things stay here, this is just going to continue to sort of go sideways.

9:14If the unemployment rate moves higher, which is probably going to mean that's what that will force the Fed to move. That will get some inventory, I think, into the system. All right. Let's talk markets now with less than 24 hours until NVIDIA reports earnings. An investor known for the big shorts, these opportunities in the entire A.I. space. Steve Eisenman is senior portfolio manager at Neuberger Berman. Steve, it's always great to see you. You're listening to our conversation. Looking sharp today, too. Looking sharp. I mean, really. Just take a second. All right. Let's just compliment my wife.

9:44We got to dismiss me and move on.

9:49I was going to say, comment on Steve's mood, which is generally good, and you feel good about the economy as well. So you're listening to our conversation. How do you feel? I'm curious. How do you feel about the housing trade? If you are a believer that the economy is in good shape, the consumer is in pretty good shape. I mean, the problem with the housing market is, you know, people are stuck in their homes because they have 3 % mortgages and they have jobs. So somebody is going to get a 7.5 % mortgage to have the same monthly payment as the person with the 3 % mortgage. The housing price has to get cut in half.

10:20Now, is somebody with a job going to sell their house and cut in half? No. So existing home sales are very weak. New home sales take share. And that's been the housing market for the last two years or so. I don't see it changing at all. You are optimistic about AI. And we often talk about how Apple is perceived as sort of the laggard in AI. You think that there's a huge... I think Apple is actually the hidden AI play. Not exactly today, but will be. Because everybody's focused on the chips. Everybody's focused on the cloud. But at the end of the day, when there will be apps, and I have no idea what that's going to be, but when there will be apps that the consumer can use, they're going to want to use it on their phone.

11:04And I have a new iPhone, and I know for sure that when all those apps come on, my phone is going to, I'll need a new phone, and I'll need a new iPad, and I'll need a new laptop. And so when the apps show up, the biggest probably beneficiary is going to be Apple because they're going to have a refresh of literally everything that they sell. Does that same sort of trade happen with Microsoft, which has unveiled its new sort of hardware lineup that is AI equipped? Partially. I mean, that's going to happen a bit. Yeah, I don't know how much Apple. I mean, you're going to need to see people start to buy their laptops.

11:39And it's going to be more than probably need more than just Microsoft doing what it's doing. The apps have not come yet when they will. And I have no idea when that's when this whole refresh cycle is really going to take off. So expanding the AI discussion, last time you were here, you talked about NVIDIA. I think you had said you had never seen an executive as confident as Jen. And happy. He's happier than me. Happier than you now is quite a thing. But do you see that's obviously not the hidden one. It is the most obvious one. But is that one that you still feel comfortable holding? I mean, look, right now, the easiest way to play AI is NVIDIA, AMD, few other chip players.

12:19and then anybody who is in the cloud or with a massive database. Beyond that, there's Apple, which I just mentioned. And after that, it's not clear because so much of what's going to happen is unknown. There's no way to know at this point. Steve, to change gears just a little bit, we'd be remiss not to ask you your view on the consumer, whether you see weakening as someone that's also obviously played that and that manifestation in the past was through the banks and someone that's so successful for having made a call, so many people were trying to make that same call over the last year and a half.

12:52And on some level, it's actually even more impressive that you've kind of been in the other way. Because I think the inclination for many investors was this is just a time bomb waiting to blow up. So what's the latest update from the front? There's no time bomb. I mean, on the credit side, credit quality is fine. Credit card delinquencies are starting to come down. Charge-offs are kind of sticky, but they're at low levels. In terms of the health of the consumer, the upper-end consumer is in great shape. The lower-end consumer is having trouble with inflation, and it's showing up in their spending.

13:26And the middle consumer is kind of treading water. It's kind of the way it's been for a very, very long time. So I just don't see the consumer's impact. I mean, it impacts, obviously, certain subsectors, but it is not an issue for the overall economy. There's that scene in When Harry Met Sally, you know, I'll have what she's having. I mean, I'd like to have what's I mean, look at him. He looks great. Happy Steve. I mean, it's fantastic. Congratulations on the transformation. Thank you. This is not a political show and we're not getting into politics. However, you have a very strong view about this election.

13:58I definitely do. What does it mean for the markets, if you're right? So my call is that with as much certainty as I could possibly have, I think Trump wins every single swing state and becomes president. and I don't think that has much implications for the market at all. Really? I mean, it'll have implications for certain subsectors. You know, there'll be some more tariffs that'll impact certain subsectors. I don't think it has much inflationary impact. Do you think it's already affecting the market right now? No, not at all. I don't think anybody's really focused. I mean, the way I think this is going to play out is in August, when the Democratic Convention convenes in Chicago, ironically, all the protesters from all the campuses are going to convene in Chicago and they'll burn the Israeli flag and they'll burn the American flag and they'll scream their heads off and the whole country's going to watch and the whole country's going to be aghast.

14:45And at that point, everybody will understand the election is over. So, you know, when you're thinking about policies of President Biden versus President Trump again, you don't think that China trade wars will be any worse under Trump versus Biden? I mean, they'll be a little bit worse, but they gave it this way. Trump created the solar tariffs and Biden reaffirmed them. So are they going to make the solar tariffs even bigger? I mean, maybe it may be that impacts a couple of solar companies on the margin. But does that have a big impact on the overall economy? I don't think so. So no, in terms of inflation, doesn't move the needle.

15:24My instincts would suggest that a Trump presidency would be inflationary, not good or bad, just inflationary. I mean, on the margin, maybe slightly, but you'd be reading tea leaves to see it. Why would it be inflationary? Well, I mean, the protectionist stuff that we've talked about for a while. My sense is there'll be tax cuts, which are my definition. So all those different things would theoretically be inflationary. But again, Steve says maybe on the margin. So we'll see. So one other thing you talked about last time you were here is the infrastructure trade that you were very bullish on. Yes.

15:58Has anything changed with that? Nothing's changed. It's the same. I mean, on a Trump presidency, you know, on the margins, some sectors might do better than others. Maybe some of the gas plays come back. But overall, the infrastructure. Should copper be over five bucks a pound? I don't do precious metals. I don't do commodities. There's a whole list of things I don't do. And that's one of them. He's got a land. All right. So if there's really no, I mean, basically, you're saying for the markets, It does not make a difference if President Biden or President Trump is in office, which seems really counterintuitive.

16:34Why? Because they're completely different candidates. Yeah, but think about just the big policies that they both have. I mean, is Trump going to get rid of the IRA or the IIJA? I mean, you may hear things, but you need 60 votes in the Senate to do it. So nobody's going to have 60 votes in the Senate. So it's going to stay the same. So this is actually a great scenario for the markets. Certainty. In either case. Certainly because it's a great case of the markets. I'm just making an election call. That's all. Yeah. No, but it's a fascinating call. How do you think things play out on campus? As you've been vocal when it comes to your alma mater, University of Pennsylvania.

17:11So on that, I'm extremely pessimistic. Okay. And the reason why I'm pessimistic is it goes far beyond just the protests. You know, I remember when I was at Penn, I had a professor who taught intellectual history. I took him twice. and he would teach a book a week, and he would teach it from the perspective of the author. I didn't know that this guy was a conservative until I knew him for two years. If you go through the Penn course catalog or the Harvard course catalog or the Cornell course catalog or the Columbia course catalog, and you read the descriptions of the courses in the humanities that they're teaching, I think there's only one conclusion you can reach, which is these kids aren't being taught.

17:52They're being indoctrinated. So ask yourself, what would it take to move these universities back to what they once were? Well, you've got to expel all the students that are protesting. Every single adjunct professor who's protesting needs to be fired. Every tenured professor who's protesting, you can't fire them, but you don't have to let them teach. And then you have to go through the course catalog and just change the courses to teaching as opposed to indoctrination. Now, do I think, what's the probability of that happening? It's not going to happen because the people who administer these schools believe in this stuff.

18:28They believe in this ideology. So why are they going to do any of this? They're not. And in a sense, they're really on the side of the protesters. They just don't like the publicity. You've taken your name off a scholarship. I did that already. Yeah. It's certainly not going back on. Right. We've got to leave it there. Steve, it's always great to see you and get your perspective on everything. Steve Eisman, Newburger Berman. I don't know if you want to talk trades or UPenn. You're certainly active there. Yeah, I guess I'd rather talk trades than Wharton. But I know I like the infrastructure trade.

19:03I just I get such a kick out of Happy Steve, you know, a novel, right? Well, now it's sort of been a year or two of happiness. Right. I'm Jewish, but now I'm just long. Contagious. Long only. The line was I was born Jewish, but I've converted to long only. Right. And it's made all the difference. It's a good line. All right. Coming up, mainland Monjaro, Eli Lilly's diabetes drug clearing a key hurdle in China. As the weight loss drug wars rage on, what the approval means for competition in that market next. Plus, we have Bitcoin ETFs, but could there be another cryptocurrency ready to follow suit?

19:38The coin everyone is watching, including the SEC. More on that one. Fast Money Returns.

19:46This is Fast Money with Melissa Lee, right here on CNBC.

19:58Welcome back to Fast Money. Eli Lilly soaring more than 2.5 % to close above$800 for the first time. The company's GLP-1 drug, Trisepetide, getting approval in China to treat type 2 diabetes, though its use for long-term weight management is still under review. The company also saw positive data in trials of its late-stage Crohn's disease treatment, finding that over half of patients with Crohn's achieve clinical remission at the one-year mark after taking Lilly's drug. So a lot of developments here. Obviously, for weight loss, we're still waiting for the approval for weight loss specifically, but it is regarded that that's just going to be the next step.

20:33And then, of course, the supply issues still hold. The market continues to reward them, probably justifiably so, but you really got to believe in the, basically in the revenue story, right? And we had a whole conversation. Who's a good looking cat from Cleveland, we always say. Remember? Sits there with his little jacket on and talks about? About Lily? Yeah. Oh, Jared, yes. Jared Holtz. Yes. Love him. And I asked him the question, and he said, you know, they probably have runway. You don't need to see that type of revenue growth until 2026. And that's what the market is getting ahead of. If they show signs of not being able to get there, you know, again, This is a company that$158 billion of revenue.

21:09It's approaching, what,$800 billion of market cap? I mean, it's expensive, folks. Just understand. So the two things today, the China news, though, I wonder what can that market support in terms of what can they pay for this drug? Right. I don't know. It has to be a fraction of what we expect to pay here. So I'm wondering, I mean, is all of this move then on Crohn's? Maybe it could be. And I mean, what Jared was making the point today in his note that nobody has China factored in at all at all estimates for future sales of the drug. So that's just potential upside, whatever it may be, even if it's a small fraction of the population that can pay for it.