Keepin' It Real 

Economics, Housing, & Commercial Real Estate Analysis

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  • Alex Pettee, CFA

Daily Recap: Trade Hopes | Stocks Gain | Housing Inflation

No news is good news. On the first day of the closely-watched trade negotiations between the US and China, US equity markets advanced as trade discussions appeared to be advancing after fears earlier this week that recent escalations and hickups could derail the meeting. After gaining nearly 1% yesterday, the S&P 500 (SPY) climbed by 0.7% while the Nasdaq (QQQ) gained 0.8%. Despite a cooler-than-expected CPI inflation reading this morning, the 10-Year yield advanced by 7 basis points on the day and is now higher by 14 basis points since the end of last week.

Real estate equities were generally higher on the day, but underperformed the broader equity market gains for the second straight day. The broad-based REIT ETF (VNQ) finished the day higher by 0.1%, led to the upside by the cell tower, mall, and single-family rental REIT sectors while the office, data center, and storage REIT sectors lagged on the day. Top individual performers included hotel REITs, Summit (INN), Sunstone (SHO), and Pebblebrook (PEB) as well as cell tower REIT, SBA Communications (SBAC).

The Hoya Capital Housing Index, the benchmark that tracks the performance of the US housing industry, finished the day higher by 0.5% with six of the eight industry groups finishing in positive territory on the day. The home improvement retail, home furnishings, and mortgage lenders/servicers led today's gains while the homebuilders and real estate brokerage and technology companies lagged. Yesterday afternoon, Bed Bath & Beyond (BBBY) jumped more than 21% after it named Mark Tritton, CMO at Target, as the company's new CEO to succeed interim CEO Mary Winston, a move that was applauded by investors and analysts. Top individual performers included MGIC Investment (MTG), At Home (HOME), Lowe's (LOW), AO Smith (AOS), and New Residential (NRZ).

This morning, the Bureau of Labor Statistics released Consumer Price Index data for September. CPI inflation data showed signs of cooling in September following a mild acceleration this summer. Headline CPI and Core CPI both missed estimates at 0.0% and 0.1%, respectively, on a month-over-month basis. Dragging on the headline data, food and energy prices remain in deflationary territory as oil prices remain lower by nearly 30% from the same time last year. Core CPI rose 2.36% on a year-over-year basis, retreating from last month's 12-year high of 2.40%. Earlier in the week, the BLS reported Producer Price Index data for September. Core PPI decelerated sharply to 1.99% after perking higher last month. Released last week, at 1.73%, Core PCE is still below the Fed's "symmetrical" inflation target of 2.0%. 

Housing costs continue to be the primary driver of what little overall inflation that there is. Housing (CPI: Shelter) accounts for more than a third of the total CPI weight (42% including housing-related services), and since 2013, housing inflation has been significantly above the overall inflation rate. From 2015 through late 2016, housing inflation was one of the only components keeping Core CPI out of deflationary territory, and since 2013, core inflation excluding housing has averaged roughly than 1%. Housing inflation has reaccelerated over the last several months after moderating slightly in 2018. Consistent with earnings results from the apartment REITs and private-market data showing a reacceleration in rents since late 2018, at 3.5% CPI: Shelter is within 20 basis points of multi-decade highs and at 3.8%, Primary Rents are within 10-basis points of 12-year highs. 

Yesterday morning, the U.S. Bureau of Labor Statistics (BLS) reported job openings and labor turnover (JOLTS) were little changed in August, coming in at 7.1 million versus expectations of 7.2 million. While still a solid reading, August's reading was the lowest level since March 2018. After peaking at a growth rate near 20% in late 2018, the rate of growth in job openings have been trending lower this year, consistent with cooling job growth seen across most labor market metrics. Within separations, the quits rate was largely unchanged at 2.3%, and the layoffs and discharges rate was unchanged at 1.2%.

For an in-depth analysis of all real estate sectors, be sure to check out all of our quarterly reports: Apartments, Homebuilders, Student Housing, Single-Family Rentals, Manufactured Housing, Cell Towers, Healthcare, Industrial, Data Center, Malls, Net Lease, Shopping Centers, Hotels, Office, Storage, Timber, and Real Estate Crowdfunding.

Disclosure: An investor cannot invest directly in an index and index performance does not reflect the deduction of any fees, expenses or taxes. The information presented does not reflect the performance of any fund or other account managed or serviced by Hoya Capital Real Estate. We consider the information in this presentation to be accurate, but we do not represent that it is complete. It should not be relied upon as the sole source of suitability for investment. Please consult with your investment, tax or legal adviser regarding your individual circumstances before investing. Visit our website for a complete definition of all indexes cited in this report. Investing involves risk and loss of principal is possible.

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Hoya Capital Real Estate ("Hoya Capital") is an SEC-registered investment advisory firm that provides investment management services to ETFs, individuals, and institutions, focusing on portfolio and index management of publicly traded securities in the real estate industry. It is not possible to invest directly in an index. Index performance cited in this website or commentary does not reflect the performance of any fund or other account managed or serviced by Hoya Capital Real Estate. Nothing on this site nor any published commentary by Hoya Capital is intended to be investment, tax, or legal advice or an offer to buy or sell securities. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and should not be considered a complete discussion of all factors and risks. Data quoted represents past performance, which is no guarantee of future results. Investing involves risk. Loss of principal is possible. Investments in companies involved in the real estate and housing industries involve unique risks, as do investments in ETFs, mutual funds, and other securities. Hoya Capital has no business relationship with any company discussed/mentioned. Hoya Capital never receives compensation from any company discussed/mentioned. Hoya Capital, its affiliate, and/or its clients and/or its employees may hold positions in securities or funds discussed on this website and our published commentary. A complete list of holdings and other important disclosures and definitions are available by clicking the links below.

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