People Aren’t Selling Their Homes

Plus: The year’s biggest startup so far hails from what industry? Wrong, it’s a hedge fund. ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

July 19, 2023

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TOGETHER WITH

Good morning.

With so much uncertainty in the world, we’re happy to report that there’s finally clarity regarding one of life’s bigger questions: who owns the trademark to “Taco Tuesday.”

In May, Taco Bell petitioned the US Patent and Trademark Office to void Taco John’s trademarked phrase, and Taco John’s now says it would be a waste of millions of dollars to keep fighting this cheesy, crunchy, salsa-topped battle. The trademark will now be free to use in all states except New Jersey, where it’s owned by Gregory’s Restaurant & Bar on the Jersey Shore (and where it’s also illegal to pump your own gas at the gas station). Taco Bell plans to take the fight to the Jersey Shore, but they might wind up sleeping with the fish tacos.

Morning Brief

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Nobody can buy a new house.

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The UK goes big on small nuclear plants.

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Ilex hedge fund raises most start-up money this year.

Housing

The US Housing Market is Nearly Non-Existent

Is it still a seller’s market if nobody’s selling?

Just 14 of every 1,000 US homes, or a little more than 1%, have changed owners so far in 2023, marking the lowest house turnover rate in at least a decade, according to an analysis of MLS data published Tuesday by real estate firm RedFin. Turnover rates effectively measure housing availability — meaning prospective home buyers have exceptionally few options.

The Last House Left on the Market

The dearth of available houses was inevitable. The pre-pandemic turnover rate of roughly 20 of every 1,000 sellable homes in the first half of 2019, according to Redfin, marked a typical but not exactly active market. Freddie Mac had estimated in 2018 that the housing market needed another 2.5 million new homes to meet demand. Then came the perfect cocktail for new home sales: the pandemic, remote work, ultra-low interest rates, and a plethora of free time for which the only solution was a sprawling mid-century modern with 4 bedrooms and 3.5 baths.

But just as supply shriveled, rapid inflation led to rising interest rates. Prospective buyers were boxed out, while new owners’ blessedly low mortgage rates turned into golden handcuffs — thus marking the worst time in history for buyer’s remorse. This June saw the first time in about a year that the average home sold above its listing price, according to RedFin, while the median sale price nearly touched an all-time high.

The shortage has crunched nearly every housing market:

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There are effectively 33% fewer 4+ bedroom single-family suburban homes on the market compared to 2019, RedFin calculates, and 30% fewer two-or-three-bedroom suburban homes. Overall, prospective buyers face a market that’s 28% smaller than in 2019.

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Major metropolitan areas in California have the lowest turnover rate in the country. Meanwhile, Newark, New Jersey, holds the highest turnover rate, with roughly 24 out of every 1,000 homes changing hands so far this year, followed closely by Nashville and Austin.

“Mortgage rates dropping closer to 5% would make the biggest dent in the affordability crisis by freeing up some inventory and bringing monthly payments down,” RedFin’s deputy chief economist Taylor Marr said in the report. “But there are a few other things that would boost turnover and help make homes more affordable. Building more housing is imperative, and federal and local governments can help by reforming zoning and making the building process easier.”

Home is Where the Heart is: Despite the pandemic home-buying spree, Americans are increasingly shunning the idea of leaving town. Due to ongoing economic uncertainty and the high cost of moving, the national moving rate has been on the decline for the last six years through 2022, according to data analyzed by the National Association of Realtors. Maybe there is no place like home after all. At least, no place cheaper.

– Brian Boyle

Energy

The UK Is Going Big on Small Nuclear Reactors

(Photo by Pixabay via Pexels)

The UK is making a big bet that smaller is better, at least when it comes to nuclear reactors. Critics aren’t certain how scalable that is.

The nation announced on Tuesday the creation of Great British Nuclear (GBN), a new body to foster development of nuclear power production with a £157 million ($206 million) awards pot for companies that want to vie for contracts to make small modular reactors (SMRs), which will supposedly produce cheaper energy than their larger counterparts. However, experts told The Daily Upside that SMRs are far from an economic slam-dunk.

Dream Small

About 15% of the UK’s energy comes from nuclear plants, and Energy Minister Grant Shapps told the Financial Times he wants to spark a “renaissance” in British nuclear power — so expect more Michelangelesque frescos on cooling towers.

Unfortunately, SMRs are something of an unknown quantity, and it’s uncertain whether they’d be able to provide the cheap energy that the UK government dreams of:

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Two UK energy policy experts told The Daily Upside it will be difficult for SMRs to achieve the scale they’d need to keep the cost of their output down. “Reactors have gotten big looking for scale economies, so it’s a bit strange to say ‘we’ll make them cheaper by making them bigger,’ then ‘we’ll make them cheaper by making them smaller,’” said Steve Thomas, an emeritus professor at the University of Greenwich.

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Both experts added that while some designs for SMRs are basically scaled-down versions of existing reactors, many are pretty theoretical and would therefore need approval from regulators. “Understanding the operational risks would be crucial to their clearance and would require significant investment to attain,” said Alex Walker, a researcher from the Centre for Environmental Policy at Imperial College London.

A third expert, Professor Jim Watson of University College London, was slightly more optimistic, saying that at best SMRs might start to scale in the 2030s, but he urged “skepticism” towards claims that energy would be competitively priced. “The history of nuclear power suggests that costs may turn out to be higher than initial expectations,” he said.

Flat-Pack: Part of the idea of how to make SMRs cheaper than their big brothers is the ‘m’ in the SMR acronym — i.e. manufacture as much as you can in a factory rather than building on-site. But Thomas says SMRs haven’t focused enough on the ‘s’’ to make this economically viable. “A lot of small modular reactors are not very small,” he said, adding: “You have in your mind something like an IKEA sofa […] that’s not realistic.”

– Isobel Asher Hamilton

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Start-Ups

This Year’s Biggest Startup is a $1.85 Billion Hedge Fund

Are hedge funds out of the woods?

Two ex-Citadel traders just blasted through their funding target to make their new venture the biggest startup of 2023, sources told Bloomberg Tuesday. That’s right–the biggest startup so far this year is not an AI company, or any tech company for that matter but hails instead from an industry that’s been practically presumed dead.

Place Your Bets

Hedge funds’ live-fast-and-die-hard business model means most last only a few years. In the past five years, more than 2,500 hedge funds have folded, while roughly 2,100 launched, Bloomberg reported. And just last year, the industry lost more than $200 billion, the biggest single-year decline since 2008, according to LCH Investments data.

While the sector remains sluggish, a few outliers have appeared, including London-based Ilex Capital Partners:

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The firm led by ex-Citadel traders Jonas Diedrich and Dave Sutton started trading with client assets of $1.85 billion on July 1, a source told Bloomberg. And the firm is likely going to add a few more hundred million in capital before they stop accepting money on August 1.

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Ilex stands out in a generally uncomfortable market. According to the Alternative Investment Management Association’s quarterly Hedge Fund Confidence Index, the average measure of confidence among managers dropped by 2.1 points quarter-over-quarter.

“The macroeconomic uncertainty that dominated the narrative in [the first quarter] continues,” the report said. “Stubbornly high inflation levels (especially in the UK) and noises from central banks that they may hike rates further are adding to the melee of factors impacting confidence levels among hedge funds.”

Hey, Big Spender: Ilex isn’t alone in impressive fundraising among new hedge funds. In January, Mala Gaonkar’s SurgoCap Partners launched with $1.8 billion in client assets. And later this year, Todd Barker, another Citadel defector, is expected to kick off Freestone Grove Partners with more than $2 billion. All of this stands in contrast to a shaky venture capital market, with Pitchbook reporting that global VC funding dropped 48% in the first half of 2023.

– Griffin Kelly

Extra Upside

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Not blowing smoke: Amazon’s emissions decrease for the first time ever.

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Stop copying me: Thousands of authors ask AI makers to stop using their books to make generative content.

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Sky is the limit: Mark Zuckerberg is attempting to earn a pilot’s license.

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