Head of BofA Global Research
There’s no place like home – especially when it’s new! This week we discuss the results from our housing survey and our outlook for mergers and acquisitions.
Our summer survey of 2,000 respondents reveals that 31% are seriously considering a move, which compares to 10% of the population that moves in a typical year. Only 18% of overall respondents cited COVID-19 as a catalyst for moving with the need for more space and a lower cost of living as bigger factors in their decision, reinforcing Homebuilders analyst John Lovallo’s view that demographics and affordability underpin recent U.S. housing strength with COVID-19 serving as an accelerant, especially among Millennials. Surprisingly, there was little discernible difference in a pandemic-induced desire to move among people living in cities, suburbs or rural areas.
Elizabeth Suzuki, who covers Retailing-Hardlines stocks, expects elevated housing turnover to support growth for home improvement, and moving to larger spaces necessitates incremental spending on interior décor, particularly given nearly half of respondents expect to work more at home even after COVID-19 concerns fade.
Although volumes of mergers & acquisitions (M&A) have increased since the lows in April, volumes in the past five months have averaged $91bn per month, down sharply from $151bn the prior five months. Credit Strategist Hans Mikkelsen notes that few companies have the capacity for debt financed M&A. While it’s typical for companies to emerge from recessions with balance sheets in poor shape – this time is the worst, with net leverage roughly double that of 2009.
Investment Grade industrial companies raised about $360bn of new cash in 1H as a war chest against COVID-19 related uncertainties, but are regaining confidence to spend. The main priority now is for companies to reduce debt, after which another M&A cycle is likely to begin years later. Until then, M&A activity will likely be sector/situation-specific, such as a strong balance sheet buying a weaker one in Energy or Healthcare as an example.
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