Economics, Housing, & Commercial Real Estate Analysis

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  • Alex Pettee, CFA

A $2 Billion Home Purchase [Daily Recap]

  • U.S. equity markets retreated from record-highs as investor attention reverts back to the potential economic fallout of the coronavirus outbreak following Apple's sales warning last night.

  • Following 1.6% gains last week, the S&P 500 finished lower by 0.3% while the Dow Jones Industrial Average retreated by 165 points after gaining 1,100 points over the prior two-weeks.

  • Coming off its best week in a year, the broad-based commercial Real Estate ETF outperformed but finished lower by 0.1% on the day ahead of a busy earnings slate.

  • "Merger mania" continued in the commercial REIT sector. Small-cap single-family rental REIT Front Yard Residential jumped 11% after it agreed to be acquired by privately held real estate firm Amherst Residential in a cash deal valued at roughly $2.3 billion.

  • Homebuilder Sentiment remained near 20-year highs in February, as the NAHB cited “steady job growth, rising wages and low interest rates" as drivers of housing demand.

Real Estate Daily Recap

U.S. equity markets retreated from record-highs as investor attention reverts back to the potential economic fallout of the coronavirus outbreak following Apple's (AAPL) sales warning last night. After gains of 1.6% last week, the S&P 500 ETF (SPY) finished lower by 0.3% while the Dow Jones Industrial Average (DIA) retreated by 165 points after gaining more than 1,100 points over the prior two weeks. The 10-Year Treasury Yield (IEF) declined by 3 basis points to end at 1.56%. Coming off its best week in more than a year, the broad-based commercial Real Estate ETF (VNQ) outperformed again but still finished lower by 0.1% on the day ahead of a jam-packed week of real estate earnings results.

The Hoya Capital Housing Index, the benchmark that tracks the performance of the US Housing Industry, retreated by 0.2% on the day after closing at record-highs last week. Homebuilder Sentiment remained near 20-year highs in February, as the NAHB cited “steady job growth, rising wages and low interest rates" as drivers of housing demand. Tomorrow morning, we'll see Housing Starts and Building Permits data for January and on Friday, we'll see Existing Home Sales. Single-family rental REIT Invitation Homes (INVH) reported results this afternoon, forecasting solid 2020 same-store revenue and NOI growth of 4.0% and 4.25%, respectively, at the midpoint. Student housing REIT American Campus (ACC) also reported strong results and announced it was selected as the strategic housing master plan partner for West Virginia University, trading higher by 4% in after-hours trading.

"Merger mania" continued in the commercial REIT sector as small-cap single-family rental REIT Front Yard Residential (RESI) jumped more than 10% after it agreed to be acquired by privately held real estate firm Amherst Residential for $12.50 per share in cash in a deal valued at roughly $2.3 billion that is expected to close in 2Q20. As analyzed in our Single Family Rental REIT report, RESI owns a portfolio of roughly 14,000 homes. The lone REIT to report this morning, NexPoint Residential (NXRT) retreated from recent record-highs after the small-cap apartment REIT reported earnings results that were slightly shy of estimates. Consistent with reaccelerating rent growth in 2019 observed across the residential REIT sector, NXRT reported strong 4.3% growth in same-store revenues and a 6.7% rise in same-store NOI.

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