Month: December 2021

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Business News for Dec. 17, 2021

On Thursday, prosecutors and defense lawyers laid out their closing arguments in the fraud trial of the founder of Theranos, the failed blood testing start-up. In what was effectively their last shot at convincing jurors, each side framed their arguments around the question of whether Ms. Holmes, 37, had deliberately chosen to lie, mislead and dissemble about her start-up.

“She chose fraud over business failure,” Jeff Schenk, an assistant U.S. attorney and one of the lead prosecutors, said of Ms. Holmes in his closing address to the jury.

Kevin Downey, a lawyer for Ms. Holmes, argued that she believed her own claims and had never meant to deceive. “If someone is acting in good faith, you have no reason to find them guilty,” he said.

The closing arguments capped 15 weeks of a trial that has stood out in the world of white-collar crime. Ms. Holmes’s case is being closely watched as a referendum on the worst excesses of Silicon Valley’s start-up culture, which prizes change-the-world claims and fast growth. The verdict could influence whether prosecutors pursue similar white-collar cases at a time when tech start-ups are swimming in funding and hype.

But proving intent is the most difficult part of prosecuting a white-collar criminal trial, said James Melendres, a former federal prosecutor.

“It goes to what was happening inside someone’s mind, which is extremely hard to prove definitively,” he said.

The jury of eight men and four women will begin to deliberate Ms. Holmes’s fate once the defense concludes its closing arguments, most likely on Friday. Ms. Holmes, who has pleaded not guilty to nine counts of wire fraud and two counts of conspiracy to commit wire fraud, faces up to 20 years in prison if convicted.

Before Theranos imploded, Ms. Holmes stood out as the rare successful female founder in the male-dominated tech industry. She founded Theranos in 2003, dropped out of Stanford University in 2004 to work on the start-up and raised nearly $1 billion from investors for the company’s supposedly revolutionary blood testing technology. Its promise: Theranos’s tests could detect a range of health conditions with just a few drops of blood.

But a Wall Street Journal investigation in 2015 revealed that Theranos’s technology did not work and that Ms. Holmes appeared to have been courting investors and commercial partners with misleading claims. The company collapsed in 2018 after voiding millions of its blood tests.

That same year, Ms. Holmes was indicted on fraud charges. Her trial began on Sept. 8 after numerous delays.

Prosecutors called 29 witnesses, outlining six main areas of Ms. Holmes’s alleged deception, including lies about the abilities of Theranos’s technology, its work with the military and its business performance.

Former Theranos employees testified that the start-up’s technology regularly failed quality-control tests, returned inaccurate results and could perform only a dozen tests, rather than the hundreds that Ms. Holmes claimed. Doctors and patients spoke about how they had made medical decisions based on Theranos tests that turned out to be wrong.

Prosecutors also showed a set of Theranos validation reports that bore the logos of pharmaceutical companies that had neither prepared nor signed off on the conclusions therein. They showed letters to investors in which Ms. Holmes falsely claimed Theranos had military contracts and emails from employees that said the company hid device failures and removed abnormal blood test results.

In testimony, investors and pharmaceutical executives said that Ms. Holmes’s claims had led them to invest millions of dollars in Theranos or sign contracts with her company.

“The government spent a lot of time putting in evidence about not just one particular alleged misrepresentation, but several,” Mr. Melendres said. “If you line up three, four, five, a half-dozen misstatements, it gets harder for the jury to pull together on anything other than that there was an intentional scheme.”

The defense called only three witnesses and relied on Ms. Holmes to carry their case. Last month, she took the stand to paint herself as a well-meaning entrepreneur who was naïve and relied too much on those around her. She said she had been emotionally and physically abused by Ramesh Balwani, Theranos’s former chief operating officer and her former boyfriend.

Ms. Holmes’s voice shook and her eyes teared up as she recounted how Mr. Balwani dictated nearly every aspect of her life and even forced sex on her, implying that she was less in control of her actions than prosecutors had made out. She cried on the stand for a second time when prosecutors, to rebut her characterization that the relationship was abusive, asked her to read loving text messages between her and Mr. Balwani.

Mr. Balwani, who faces identical fraud charges to Ms. Holmes and faces trial next year, has denied the allegations.

On Thursday, Mr. Schenk dismissed Ms. Holmes’s accusations of abuse as irrelevant to the fraud charges.

“The case is about false statements made to investors and false statements made to patients,” Mr. Schenk said, noting that a guilty verdict did not mean the jury disbelieved her abuse allegations and vice versa. “You do not need to decide whether that abuse happened.”

Mr. Schenk instead focused on tying together weeks of testimony. He walked through the witnesses one by one and outlined each element of the 11 counts against Ms. Holmes. At times, he instructed jurors to write down exhibit numbers to refer back to during deliberations.

Over and over, Mr. Schenk highlighted claims Ms. Holmes herself had made, pointing to inaccurate quotes she gave to journalists and playing a recording of her exaggerating Theranos’s military ties to investors.

He displayed emails to Ms. Holmes, in which she was informed of problems with the accuracy of Theranos’s technology, and a timeline showing that she forged ahead with the start-up’s commercial introduction nonetheless.

“She was involved; she’s responsible; she knows,” Mr. Schenk said.

The defense began its closing argument by positing that the government did not tell the full story of Theranos’s relationship with pharmaceutical companies. Mr. Downey said Theranos had some contracts with pharmaceutical companies and pointed out instances in which Ms. Holmes offered to connect investors with the drugmakers, arguing that she did not intend to deceive investors about those relationships.

He lingered on the positive feedback that Ms. Holmes received about Theranos’s tests to show she believed her claims about the technology. He also pointed to her willingness to allow the Food and Drug Administration and other institutions to evaluate Theranos’s technology as signs that she was not trying to hide how the technology worked.

Mr. Downey also delved into details like Ms. Holmes’s understanding of the word “accuracy” to demonstrate that others had misunderstood her, not that she had misled them.

Mr. Downey concluded Thursday’s session by displaying a list of Theranos’s star-studded board of directors, which included a former secretary of state, George Shultz, and a former senator, Sam Nunn, a Democrat from Georgia.

The slide was titled: “Was this group all fooled?”

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Plans to Reopen St. Croix’s Limetree Refinery Have Analysts Surprised and Residents Concerned

An accident-prone oil refinery in the U.S. Virgin Islands with a history of serious environmental violations could soon reopen under new ownership, despite strong objections from nearby communities, a litany of environmental scandals and a shaky financial outlook.

After shutting down in 2012 and declaring bankruptcy in 2015, St. Croix’s Limetree Bay refinery restarted operations under new ownership in February. But within days, the refinery began experiencing what became a series of high-profile accidents that enraged nearby residents, raining oil down on homes, contaminating drinking water and releasing hazardous fumes so pungent that officials shut down schools and offices for days.

Environmentalists saw the restart as a testament to former President Trump’s pro-fossil fuel agenda for “American energy dominance” and his administration’s penchant for granting favorable terms to well-connected corporate interests. Trump officials expressed a willingness in emails to the refinery’s new owners to facilitate its reopening, and legal scholars said the administration ignored decades of precedent in issuing new permits. 

The Environmental Protection Agency dispatched investigators in early May to the island,  where they declared Limetree was in violation of the Clean Air Act and ordered the facility to halt operations, citing an “imminent” health threat to residents. Then this summer, Limetree’s owners—a consortium of privately-funded companies that include Limetree Bay Refining and Limetree Bay Services—announced the facility would cease operations for good. They promptly declared bankruptcy, announced layoffs for more than a quarter of the refinery’s employees and began the process to auction off the property.

In October, several bids emerged from companies seeking to dismantle the dysfunctional facility and sell it off for scrap. For many residents who live the closest to the property, which stretches for more than two square miles across the southern shore of the small Caribbean island, the moment presented a chance to get rid of a poorly run—and what some consider unnecessary—refinery that disproportionately harmed mostly Black and Brown communities.

Limetree Bay Oil Refinery

The 56-year-old facility, previously owned by a joint venture between Hess Corporation and Venezuela’s state-run oil company, was well known by locals for its checkered past. The EPA discovered as far back as 1982 that the facility was leaking tens of millions of gallons of oil into St. Croix’s groundwater. And in 2011, the agency slapped the refinery with a fine for violating the Clean Air Act and ordered it to spend hundreds of millions of dollars to bring its pollution control equipment up to modern standards, compounding the factors that ultimately led to its bankruptcy in 2015. 

Now, as Limetree Bay Services prepares to sell off the St. Croix plant, along with its storage facilities, for some $30 million—six times less than what its current owners paid in 2016—many St. Croix residents are watching with increasing skepticism.

The already protracted auction process, in which most of the talks have taken place remotely on conference calls or 2,000 miles away in a Houston courtroom, has left many residents with an all-too-familiar feeling that people outside of St. Croix are controlling its fate, said Jennifer Valiulis, executive director for the St. Croix Environmental Association.

“It’s hard to really get a good grip of what’s going on because so much of this feels like it’s happening so far away from us,” Valiulis said. “It just doesn’t seem like anybody from St. Croix is involved in that at all.”

Case in point: For more than a month, St. Croix residents had been fretting over a mysterious and newly established private company called St. Croix Energy, which emerged as the lead bidder, despite having no clear experience with oil refining and questionable capital to back what could likely be a billion-dollar overhaul of the plant. But on Monday, just one day before the sale with St. Croix Energy was set to go through, Judge David Jones of the U.S. Bankruptcy Court in Houston allowed Limetree to reopen the auction to let in a surprise bidder who says he fell ill just before the original deadline.

Now Limetree appears to be on track to sell the property to West Indies Petroleum’s Charles Chambers, who also said he wants to restart the plant. Chambers has deposited $3 million in cash to Limetree, offering to pay another $30 million cash upon closure. St. Croix Energy’s bid only offered $20 million cash. West Indies Petroleum is a maritime refueling firm based in Kingston, Jamaica. 

A hearing for the sale has been rescheduled for 10 a.m. Central time, on Dec. 21. Residents can call into the hearing by dialing 832-917-1510 and entering the conference number 205691, according to a public record filed with the regional bankruptcy court. 

Ariella Hayes and other St. Croix residents opposing the refinery’s restart said they fear reopening Limetree could be a recipe for environmental disaster—a repeat of the nightmare they experienced this year as the plant spewed oil mist from its stacks and emitted a foul stench that community members said smelled like rotten eggs, stung their eyes and throat and caused some people to briefly lose consciousness.

“I think the best thing for it is to cease,” said Hayes, who has lived in St. Croix for 30 years. 

A community survey conducted over the summer by several St. Croix organizations in conjunction with Vermont’s Bennington College included numerous stories from residents about Limetree’s adverse impact on their lives. They included an incident of a child gasping for air in the middle of the night, reports of emergency rooms overrun with people struggling to breathe, and oil “flared” from smokestacks splattering the windshields of motorists passing the refinery. David Bond, a Bennington college professor, has spent years documenting Limetree’s environmental and social impact on St. Croix. 

Ryan Flegal, who owns a bed and breakfast in St. Croix, said he’s worried that the Virgin Islands government is prioritizing short-term financial gain over the long-term economic health and safety of the territory and its residents by supporting the refinery’s restart. To Flegal, another accident could hurt the island’s tourism industry, which would mean fewer people coming to stay at his hotel.

St. Croix Energy and West Indies Petroleum didn’t respond to questions regarding residents’ concerns for safety.

Virgin Islands Gov. Albert Bryan has long supported bringing oil refining back to St. Croix, citing the economic benefits the refinery was expected to bring to the U.S. territory. If Limetree remains closed, it would result in annual losses of $632 million in the territory’s gross domestic product, $25 million in lost tax revenue and almost $2 billion in lost economic activity, a recent government report predicted.

But financial analysts familiar with the refinery say keeping it open could also be a risky bet. Limetree’s current owners face at least four class action lawsuits for this year’s accidents and owe tens of millions of dollars in unpaid wages to contractors who helped get the plant up and running in February—a reminder of the kind of consequences future buyers could see if their efforts fail to restart the plant safely.

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It’s possible that Limetree could be turned into a viable and profitable business still, said Alan Gelder, an analyst with Wood Mackenzie, an international energy consulting firm. Global demand for oil recovered from the pandemic quicker than anticipated over the summer as economies swung back into action, he said, and the refining industry was looking better than usual up through Thanksgiving. But the Covid-19 omicron variant could spell trouble again for the oil market if governments order more lockdowns, Gelder said.

Still, the more pertinent question analysts are asking is just how long can Limetree remain profitable as governments work to reduce their carbon emissions and transition to cleaner energy sources. A recent survey by Bloomberg Intelligence found that most investors believe that global oil demand will peak sometime between 2025 and 2035.

There’s “a period of four, five years before things start to turn down,” Gelder said regarding the global oil refining outlook. “That’s really driven by the energy transition, where we get growing penetration of electric vehicles as the world tries to decarbonize.”

Pavel Molchanov, an analyst with Raymond James, an American investment bank and financial services company, said the reputational risk that comes with Limetree’s history, combined with market pressures to push investments into more environmentally friendly stocks, have already scared away investors. “It would be unwise for anyone to spend time and resources on such an ill-fated effort,” he said.

The Limetree refinery also faces several factors that could make running the facility cost prohibitive, analysts have said. EIG and ArcLight Capital, the private equity firms that financially backed Limetree’s February restart, have already spent $4.1 billion on refurbishing the facility. But the refinery would need at least $1 billion more to finish its massive overhaul and make it a viable operation, Reuters reported this summer.

Furthermore, a letter that the EPA sent to potential buyers in September laid out an extensive list of requirements future owners may be obligated to pay for, including installing new pollution control equipment and establishing new air monitors along the property’s fence line.

One particularly alarming item the letter mentioned was a second groundwater contamination in St. Croix that was only recently disclosed to federal regulators, and which the future owner of the refinery could be held liable for cleaning up. The EPA is currently investigating the extent of that spill.

“What’s clear from this is to get it running again as a refinery could require some considerable investment and could take quite some time,” Gelder said. “Would I do it? I don’t think I would. But I’m not in their shoes really.”

Kristoffer Tigue

Reporter, New York City

Kristoffer Tigue is a New York City-based reporter for Inside Climate News, where he covers environmental justice issues, writes the Today’s Climate newsletter and manages ICN’s social media. His work has been published in Reuters, Scientific American, Public Radio International and CNBC. Tigue holds a Master’s degree in journalism from the Missouri School of Journalism, where his feature writing won several Missouri Press Association awards.

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Any war with China is ‘likely to be around Taiwan’

The Senate on Wednesday overwhelmingly passed a $768 billion defense policy bill that directs the president to create a “grand strategy” to address global economic and military threats posed by China.

That vote came as news emerged that U.S. military commanders have created a software tool designed to predict how China will react to U.S. activities in the area, such as U.S. officials’ visits to Taiwan.

In a new interview taped Monday, billionaire hedge fund titan Ray Dalio said a military confrontation between the U.S. and China is unlikely for now. However, he added that if a U.S-China war does break out, it will likely be over Taiwan, a disputed entity roughly 100 miles off the coast of Southeastern China.

“Well, I think if there’s going to be a military war issue, it is likely to be around Taiwan,” Dalio told Yahoo Finance’s editor-in-chief, Andy Serwer. Later, Dalio added, “Watch what’s going on closely with Taiwan, and you’ll see the straws in the wind.”

While Taiwan has a democratically elected government and a “robust unofficial relationship with the U.S.,” the United Nations doesn’t recognize it as an independent country. As Serwer noted in a column for Yahoo Finance last month, Taiwan has been in political limbo since the Chinese Civil War nearly three-quarters of a century ago. But more recently, tensions between the U.S. and China over Taiwan have flared up.

People wear a face mask to prevent the spread of the coronavirus disease (COVID-19) while passing a night market in Taipei, Taiwan, August 6, 2020. REUTERS/Ann Wang

People wear a face mask to prevent the spread of the coronavirus disease (COVID-19) while passing a night market in Taipei, Taiwan, August 6, 2020. REUTERS/Ann Wang

Communist China, for its part, insists that Taiwan is a province of the mainland. The country has repeatedly entered Taiwan’s air defense zone in the past year, and in October, China condemned the U.S. and Canada for trying to “stir up trouble” by sending warships through the Taiwan Strait.

Speaking to Yahoo Finance, Dalio described the status of Taiwan and its potential to provoke military action between the U.S. and China this way: “It’s an important issue that might be, could be fought over. I think that you watch it.”

This was far from the first time Dalio has commented on China tensions. He’s faced backlash over the fact that his hedge fund, Bridgewater Associates, has investments in China — particularly after an interview with CNBC last month where he seemingly likened the country’s autocratic government to a “stern parent.” In a Dec. 5 LinkedIn post clarifying the statement, he said that view was not his own, but rather, he was explaining what a Chinese leader told him about the country’s approach to governing. 

Dalio went on to note that Bridgewater invests in about 40 countries, including China, and that it relies on guidance from regulators in those countries and in the U.S. However, he added: “Having said all this, what I think and what Bridgewater does are of minuscule importance relative to the rapidly growing risk of U.S. war with China due to misunderstandings and inclinations to fight …”

War is far from Dalio’s only concern about China, however. In his new book, “Principles for Dealing with the Changing World Order,” the hedge fund manager expresses certainty that China will become a greater world power than the U.S., as a Wall Street Journal review noted. He reiterated this prediction to Yahoo Finance.

“The population of China has four times that of the United States,” Dalio noted. “So if it has an average income of half the United States, it will be twice as large as the United States.”

While China may someday become a greater world power than the U.S., its economy has suffered amid the pandemic, the country’s regulatory crackdown on Chinese companies, and a prolonged property downturn sparked in part by the downfall of mega-developer Evergrande. 

For his part, Dalio stressed that the U.S. should turn its focus toward itself. “If we do the right things, to be strong, so that we are stronger than any opposition in the world,” he said, “we won’t have a problem.”

Erin Fuchs is deputy managing editor at Yahoo Finance.

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Meta/Facebook is the worst company of the year: Yahoo Finance readers

Every December, Yahoo Finance selects a Company of the Year, based on its market performance and its achievements that particular year. In 2021, Microsoft (MSFT) took home the crown, smashing through the $2 trillion market capitalization mark and seeing a 53{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} surge in its stock price as of Dec. 16, year-to-date.

However, the spirit of Festivus has taught us we can learn just as much from the bad as the good by airing our grievances. That’s why Yahoo Finance also selects a Worst Company of the Year, polling our audience as to which company upset them the most.

Our survey’s 1,541 respondents were mad about a lot this year, from the Robinhood (HOOD) trading freezes last winter to electric truck startup Nikola still not having its act together. But one company irked them the most — Facebook (FB). The survey’s results shed more light on why the company decided to rebrand this year to a new name: Meta Platforms.

The open-ended survey was posted on Yahoo Finance on Dec. 4 and Dec. 5, and dozens of names were submitted. Facebook received 8{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} of the write-in vote.

Facebook has had its share of controversies this year. It’s been under the antitrust microscope and faced a flurry of allegations from a whistleblower claiming Facebook ignored safety issues for the sake of growth. Congress is constantly demanding answers from the company on both fronts. At the same time, some critics, including conservatives, say Facebook over-policed the platform’s speech and stifled their voices. Other critics, including those on the left side of the aisle, claim Facebook allows the spread of misinformation.

US whistleblower and former Facebook engineer Frances Haugen gives a testimony on the negative impact of big tech companies products on users, at the European Parliament in Brussels, on November 8, 2021. - Facebook whistleblower Frances Haugen urged the EU to remain steadfast against big tech on November 8, boosting European efforts for new laws against US giants. The former Facebook engineer leaked a trove of internal documents that have sparked weeks of criticism of the social media giant. She met with key lawmakers in Brussels responsible for pushing through major legislation that could force the world's biggest tech firms to rethink the way they do business. (Photo by JOHN THYS / AFP) (Photo by JOHN THYS/AFP via Getty Images)

US whistleblower and former Facebook engineer Frances Haugen gives a testimony on the negative impact of big tech companies products on users, at the European Parliament in Brussels, on November 8, 2021.(Photo by JOHN THYS / AFP) (Photo by JOHN THYS/AFP via Getty Images)

What is especially interesting about the Company Formerly Known as Facebook is just how many and varied the reasons people dislike it. It received 50{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} more votes than the second-place finisher, Chinese e-commerce giant Alibaba, not for one singular offense but for a litany of grievances from groups of people that may have little else to agree about.

There were significant complaints of censorship, mainly of the right and conservative voices that felt that the “free-speech police” was being unfair and they were owed the right to say whatever they wanted to on the platform.

On the other side, people hectored the platform for failing to police significant misinformation that in the view of critics contributed to people not taking the pandemic’s potential for death seriously (797,877 official deaths in the U.S. and counting). Facebook was also blamed for the rise of far-right extremism and “undermining democracy worldwide,” as one respondent put it.

Outside of the political conversation, many respondents were upset with the company’s effects on children and young people, citing its photo-sharing site Instagram and its effects on mental health, after internal documents revealed the company knew Instagram made teenage girls feel worse about body image issues but didn’t address the problem.

Facebook/Meta Platforms did not respond to a request for comment.

Can the company redeem itself?

Around 30{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} of Yahoo Finance readers who responded to the survey said that Facebook or Meta could redeem itself.

One respondent said Facebook could redeem itself by acknowledging and apologizing for what it did and donating a “sizable amount” of its profits for a foundation to help reverse its harm. While some people saw the Meta rebrand as a cynical attempt to change the conversation, following Don Draper’s advice in scandal, others were excited by the potential of a new direction that could a) be interesting and b) something different from the aging social media model.

A significant amount of responses focused on executives and founder and CEO Mark Zuckerberg. Zuckerberg has certainly never been Mr. Popular, which Aaron Sorkin and David Fincher decided was the reason he created “The Facebook,” in the movie “The Social Network.” But he has long been seen as a visionary with an uncanny knack at predicting (or manifesting) the future, making it unlikely he departs from the company he founded, shaped, and pivoted.

One way it could redeem itself, for the angry investors in the survey, would be to grow its stock price, apparently. The stock is up 22{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} year-to-date — strong, but lagging the S&P 500— but down around 13{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} from its September high.

Zuckerberg and co. have their challenges cut out for them in 2022. Fortunately for them, they’re already reinventing the company.

The (dis)honorable mentions

The annual airing of grievances saw a few companies get special mention from Yahoo Finance readers.

  • Alibaba’s (BABA) almost 50{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} drop year-to-date earned it the number two spot. Investors are upset at having lost money.

  • AT&T’s (T) loss of 24{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} year-to-date as the S&P 500 saw a 24{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} increase. Like Alibaba, this is a story of share price dissatisfaction.

  • Nikola (NKLA) and its many issues last year, with a short seller claiming it was a fraud.

  • Tesla (TSLA) stock has soared, but people are furious with the company rolling out products before they are ready, sexual harrassment scandals, and the general cult of personality surrounding 2021’s Time Person of the Year.

  • Market-maker Citadel Securities and retail trading platform Robinhood (HOOD) had their time in the doghouse during the Gamestock hubbub almost a year ago, and many have not forgotten — and continue to see these players as icing out ordinary retail investors they purport to help.

This was an open-ended survey performed on Survey Monkey via the Yahoo Finance home page from Dec. 4 to Dec,. 5. 1,541 people responded.

–

Ethan Wolff-Mann is a Senior Writer and Chief of Staff at Yahoo Finance. When he is reporting, he focuses on investing, consumer issues, and personal finance. Follow him on Twitter @ewolffmann.

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The hottest housing market of 2021

The U.S. housing market has been “bonkers” and is “still nuts” — words recently used by real estate guru Barbara Corcoran on Yahoo Finance Live. Since COVID-19 emerged, homes are being sold at a record clip and prices are skyrocketing across the nation. But the frenzy is especially magnified in one Sunbelt City.

Austin is this year’s Yahoo Finance 2021 hottest housing market. According to almost every real estate company that tracks home prices, no matter how you slice and dice the data, home prices in the capital city of Texas have soared, outpacing the nation. 

It’s also probably not much of a surprise to industry watchers and at least one real estate company. Zillow predicted Austin would be the hottest city of 2021 way back in January. Now Zillow (Z) is predicting by the end of this year the Austin metropolitan area will become the least affordable major metro region for homebuyers outside of California; it has already surpassed Boston, Miami, and New York City.

“The Austin market has stood out and it’s because of the phenomenal shift in remote work, outperformance of tech industry and search for affordability,” said Danielle Hale, economist at Realtor.com, adding that even though prices have risen in the market it’s still half as expensive as other major cities.

Median sales price of single-family homes in the Austin metro area rose 33.5{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} to $498,400 in the third quarter of 2021 from the same period a year ago, far outpacing the national median home price increase of 16{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} for the same time period, according to the National Association of Realtors (NAR). Among the 50 major cities that Realtor.com tracks, Austin led the pack in terms of annual median listing price growth by posting a 15.9{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} increase. Similarly, NerdWallet found that among the nation’s largest metro areas, Austin saw the highest increase in listing price — a 29{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} rise in the third quarter from the same period last year.

Austin is “well positioned as a fairly affordable destination to buy a family-sized home in a location that has a lot of cultural cache,” said Jeff Tucker, Zillow’s senior economist.

‘A cool city’

Like many other warmer climate metros, Austin benefited from the COVID migration. But some would argue folks from all around the nation and even world were already flocking to the City of the Violet Crown (Austin shares this moniker with Athens, Greece) well before the virus arrived in the U.S., and not just for South by Southwest (SXSW), an annual interactive media and music festival.

“Austin was popular before COVID, it is a cool city,” said Elizabeth Renter, NerdWallet’s data analyst. “It would be topping the list of price increases and inventory decreases regardless of COVID, maybe not to this extreme.”

While most people arriving in Austin came from Los Angeles, San Jose, and San Francisco in 2020, according to a Zillow analysis, Tucker noted that the city is “a sweet spot, it attracts a lot of people from all over (migration from the West Coast, Northwest and Midwest).” Other U.S. cities like Miami tend to only be destinations for Northeast and Midwest residents, and Boise catches the eye of mostly Californians.

“Austin is a very progressive city that offers everything from not just a scenic perspective: rolling hills, great lakes. It has a very active lifestyle, it’s a tech-centric city,” said Romeo Manzanilla, former president for Austin Board of Realtors and managing director for Compass. “People from the East and West Coasts can identify with it.”

Austin Texas aerial drone of capital city of Texas - Austin texas panoramic panorama aerial drone sunrise golden colors across colorful skyline cityscape

Austin is “a cool city” that attracts homebuyers from both coasts and even outside of the U.S. Credit: Getty

It is home to billionaire and newly anointed Time Person of the Year, Elon Musk, who officially moved Tesla’s (TSLA) headquarters from California this year. Similarly, software maker Oracle (ORCL) has decamped to Austin, where it opened a campus in 2018, from Silicon Valley. And just last month, Samsung said it plans to build a $17 billion semiconductor factory right outside of Austin that is expected to be operational in the second half of 2024.

Meanwhile, next year Apple (AAPL) is expected to complete its $1 billion, 133-acre campus, which will eventually house 15,000 employees in Austin. And since establishing its first office in Austin in 2007, Google (GOOG, GOOGL) has expanded its office space in the city and now has 1,100 employees there. The latest spate of activity has essentially revived Silicon Hills, a nickname given to Austin in the 1990s. 

“Companies relocating to or expanding secondary headquarters in Austin have created substantial job opportunities and drawn people in. The combination of a strong local economy with the flexibility that people don’t have to have a job in Austin” to live there has made the market a standout, said Hale.

Job growth in Austin has been happening “for many years,” said Lawrence Yun, chief economist at the National Association of Realtors, in an email. “Based on the migration patterns of many Californians moving in, one can surmise it is due to tech sector expansion in the metro region.”

During the third quarter of 2021, 54{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} of people looking for homes in Austin were from outside of Texas including home hunters from overseas, according to Hale. Forty-six percent came from other parts of the state.

It also helps that Austin is in a “tax-friendly state (there’s no income tax) so it’s more beneficial for high-income taxpayers,” she added.

People from the Bay Area and Los Angeles “have more liquid funds to come in and put in an offer [on a home] well above asking [price],” said Manzanilla. “They have made our market competitive.”

Even before the onset of COVID in February 2020, the median home sales price in Austin was $325,000, far cheaper than a home in San Francisco, where the median sales price was $1.4 million, according to Daryl Fairweather, chief economist at Redfin. Still, that was more expensive than the national median home sales price of $302,000.

“It has been a frustrating experience for long-time local residents. Trying to outbid new tech employees has been difficult,” said Yun. “Any monthly savings accumulated for a down payment has become irrelevant as home prices rose even faster than the savings rate.”

But relief may be on the way, as experts note that there are early signs that the Austin housing market is cooling down. In fact, Fairweather said price growth has already peaked this year in April. Like the rest of the nation, price growth will subside to single-digit rates going into 2022, compared to as much as north of 20{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}, according to Fairweather.

The number of homes for sale in Austin is also on the rise. According to NerdWallet, the number of homes listed for sale in Austin rose 73{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} in the third quarter of 2021 from the prior quarter, leading the largest metros in the nation in terms of inventory growth.

That should help alleviate price pressure in the city, even as homes on the market fly off the shelf. During the third quarter of 2021, homes for sale were on the market for a mere 24 days, compared to 40 days nationally, according to NerdWallet’s Renter.

Celebrity and Austin native Matthew McConaughey, who as a minority stakeholder in the MLS team Austin FC helped the city welcome its first professional sports team this year, summed up why the Austin is so hot in an extensive interview with Yahoo Finance Editor-in-chief Andy Serwer last year: “Austin used to be a college town, a government town, and a music town. It’s now a banker town, a tech town, and an international destination.”

Amanda Fung is an editor at Yahoo Finance.

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Business News for Wednesday, Dec. 15, 2021

By Ana Swanson and Jeanna Smialek

Jerome H. Powell, the chair of the Federal Reserve, suggested on Wednesday that the economy could achieve the central bank’s full-employment goal by next year, a development that could presage raising interest rates from their rock-bottom levels.

Mr. Powell emphasized that a broad range of economic indicators, including unemployment, job openings, wages and other metrics, suggest the labor market is healing quickly, creating more room for the central bank to remove its economic support.

“In my view, we are making rapid progress toward maximum employment,” Mr. Powell said.

Mr. Powell said that the unemployment rate, which was 4.2 percent in November, has been dropping quickly. He said that the labor force participation rate had been “disappointing,” even as vaccinations increased and schools reopened, and that it now seemed likely that a return to a higher participation rate would take some time.

“We’re not going back to the same economy we had in February of 2020,” Mr. Powell said. “The post-pandemic labor market and the economy in general will be different, and the maximum level of employment that’s consistent with price stability evolves over time.”

Inflation is far outstripping the Fed’s target, climbing by 6.8 percent in the year through November, the fastest pace in nearly 40 years. But it has been less clear whether the Fed has accomplished its other economic goal — full employment — meaning that Americans who want to work are able to find jobs.

The unemployment rate is still above the 3.5 percent that prevailed before the pandemic’s onset, but it has been falling quickly. Fresh economic projections released by the Fed on Wednesday show officials expect the jobless rate to fall to 3.5 percent again by the end of next year.

About 4 million jobs are still missing compared with before the pandemic, complicating the Fed’s job when it comes to assessing whether it has met its dual goals of keeping prices stable and the job market strong.

The question has been whether and when missing workers will come back and if policymakers feel the need to leave interest rates low until they do. The virus has complicated that outlook. While many workers have retired, some are reluctant or unable to return for health, child care or other reasons.

Mr. Powell said it would likely take time, and the retreat of the pandemic, for those people to come back into the work force, and that inflation would likely need to remain in check in the meantime to allow for a long period of economic growth.

“One of the two big threats to getting back to maximum employment is actually high inflation,” he said. “Because to get back to where we were, the evidence grows that it’s going to take some time.”

Fed officials have said that they wanted to achieve inflation sustainably above 2 percent — which has been more than accomplished, several have signaled — and full employment before raising interest rates. The economic projections released by the Fed on Wednesday suggested that officials expected to make three interest rate increases next year.

Mr. Powell previously said that the Fed’s two goals have come into tension this year. He has also signaled that the central bank will not allow inflation to rocket out of control.

“We have to balance those two goals when they are in tension as they are right now,” Mr. Powell said in testimony on Dec. 1. “But I assure you we will use our tools to make sure that this high inflation that we are experiencing does not become entrenched.”

In remarks Wednesday, Mr. Powell said that the Fed did have a framework it could use to make decisions about its interest rate when its dual goals of price stability and employment come into conflict. But due to the improvement in the labor market, the Fed would not necessarily have to use it.