• Alex Pettee, CFA

China Crackdown • Rents Rise • Housing Shortage

Updated: Sep 25

Summary

  • U.S. equity markets finished mostly-higher Friday - ending a choppy week with modest gains - as better-than-expected housing data offset ongoing concerns about sweeping business crackdowns by the Chinese government.

  • Climbing for the third-straight day following a tumultuous start of the week, the S&P 500 gained 0.2% today but the Mid-Cap 400 declined by 0.3% and the Small-Cap 600 finished flat.

  • Real estate equities were under pressure today as the Equity REIT Index finished lower by 1.1% with 18-of-19 property sectors in negative territory while Mortgage REITs advanced 0.1%.

  • Bitcoin - along with the broader cryptocurrency complex - slid after the Chinese government declared all cryptocurrency-related transactions illegal, one of a handful of sweeping crackdowns imposed by the Chinese authorities.

  • AvalonBay Communities (AVB) was among the leaders today after the coastal apartment REIT boosted its third-quarter outlook, reporting rent growth of 8% in August and accelerating further to 11% in September.

Real Estate Daily Recap

U.S. equity markets were mixed Friday - ending a choppy week with modest gains - as better-than-expected housing data offset ongoing concerns about sweeping business crackdowns by the Chinese government. Climbing for the third-straight day following a tumultuous start of the week, the S&P 500 gained 0.2% today but the Mid-Cap 400 declined by 0.3% and the Small-Cap 600 finished flat. Real estate equities were under pressure today as the Equity REIT Index finished lower by 1.1% with 18-of-19 property sectors in negative territory while Mortgage REITs advanced 0.1%.

Yield-sensitive segments of the equity market - including Real Estate (XLRE) and Utilities (XLU) - were under pressure today as the 10-Year Treasury Yield climbed another 5 basis points to close at 1.46% today - the highest since late June. Bitcoin (BTC:USD) - along with the broader cryptocurrency complex - slid after the Chinese government declared all cryptocurrency-related transactions illegal, one of a handful of sweeping crackdowns imposed by the Chinese authorities over the past several months. We'll publish a full analysis and commentary of this week's developments in the real estate industry, as well as an analysis of the busy week of economic data in our Real Estate Weekly Outlook report on Saturday morning.

The strong week of housing data continued today as the Census Bureau reported that New Home Sales rose more-than-expected in August despite ongoing supply chain headwinds. Sales increased 1.5% from the prior month to an annual rate of 740k, well above consensus estimates of 720k. Completed Homes took just 3.6 months to sell in August, down from 4.4 months in July, and well below the 4.5 months last year as demand continues to significantly outpace supply. Strong New Home Sales figures follow a flurry of better-than-expected housing data earlier in the week as Housing Starts, Building Permits, Existing Home Sales, and Homebuilder Sentiment all topped forecast.

Equity REITs

Apartments: AvalonBay Communities (AVB) was among the leaders today after it boosted its third-quarter outlook and now expects same-store revenue growth to rise 1.0% in Q3 at the midpoint, up 180 basis points from its prior outlook. AVB - which focuses in coastal multifamily markets - continues to see a substantial acceleration in rent growth with average like-term effective rent change of +11.0% in September, a sequential acceleration from +8.1% in August. AVB reported that its average move-in rent in September was roughly 24% above the December 2020 rate and 6% above that of September 2019. Apartment rents across the nation are rising at the fastest rate on record as the pandemic-driven boom in household formations - including 1.6 million new renters - has clashed with the record-low housing supply.

Mortgage REITs

Per our Mortgage REIT Tracker, mREITs were mostly higher today as residential mREITs were fractionally higher to end the week with cumulative gains of 0.8%. Commercial mREITs climbed 0.1% today, pushing their weekly returns into positive territory as well. AG Mortgage (MITT) was among the leaders today after it announced that it completed the exit from its last remaining legacy commercial investment, allowing the company to complete the transition to a pure-play residential mortgage credit REIT.

REIT Preferreds & Capital Raising

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished lower 0.26% today, on average, and underperformed their respective common stock issues by an average of 0.08%. So far in 2021, REIT Preferred stocks are higher by 10.74% on a price return basis and total returns of roughly 15%. Over in the bond markets today, American Tower (AMT) priced $1.8B in senior unsecured notes: $600M of 1.450% notes due 2026, $700M of 2.300% notes due 2031, and 500M of 2.950% notes due 2051. Elsewhere, Invitation Homes (INVH) was under pressure after pricing a secondary common stock offering of 12.5M shares of common stock at $40.00/share.

Economic Data This Week

We'll publish a full analysis and commentary of this week's developments in the real estate industry, as well as an analysis of the busy week of economic data in our Real Estate Weekly Outlook report on Saturday morning.

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Disclosure: Hoya Capital Real Estate advises two Exchange-Traded Funds listed on the NYSE. In addition to any long positions listed below, Hoya Capital is long all components in the Hoya Capital Housing 100 Index and in the Hoya Capital High Dividend Yield Index. Index definitions and a complete list of holdings are available on our website.

Additional Disclosure: It is not possible to invest directly in an index. Index performance cited in this commentary does not reflect the performance of any fund or other account managed or serviced by Hoya Capital Real Estate. Data quoted represents past performance, which is no guarantee of future results. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy.

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