Keepin' It Real 

Economics, Housing, & Commercial Real Estate Analysis

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  • Alex Pettee, CFA

Housing Boom | Shutdown Gloom | Vaccines Loom

  • U.S. equity markets pulled-back from record-highs on Wednesday as more positive coronavirus vaccine news and strong housing data were overwhelmed by concerns over a "third wave" of economic shutdowns.

  • Erasing its gains for the week, the S&P 500 finished lower by 1.2% today while the Dow Jones Industrial Average retreated by 345 points. The tech-heavy Nasdaq 100 declined 0.8%.

  • The positive momentum behind the COVID-sensitive property sectors faded today as the broad-based Equity REIT ETF (VNQ) finished lower by 1.9% with 17 of the 18 property sectors in negative-territory.

  • Homebuilders and the broader housing sector were again among the leaders today following another strong slate of housing data this morning as Housing Starts and Building Permits each topped estimates.

  • The booming U.S. housing market has been a boon for home improvement retailers as well. Lowe's (LOW) reported that comparable same-store sales were higher by 30.1% in the third-quarter, smashing consensus estimates of +22.8%.

Real Estate Daily Recap

U.S. equity markets pulled-back from record-highs on Wednesday as more positive coronavirus vaccine news and strong housing data were overwhelmed by concerns over a "third wave" of economic shutdowns. Erasing its gains for the week, the S&P 500 ETF (SPY) finished lower by 1.2% today while the Dow Jones Industrial Average (DIA) retreated by 345 points. The tech-heavy Nasdaq 100 (QQQ) declined by 0.8%. The positive momentum behind the COVID-sensitive commercial property sectors faded today as the broad-based Equity REIT ETF (VNQ) finished lower by 1.9% with 17 of the 18 property sectors in negative territory. The Mortgage REIT ETF (REM) finished lower by 0.1%, but remains firmly higher on the week.

Stocks entered the session in record territory following the release of extremely promising vaccine data this morning from Pfizer (PFE), which reported that its COVID-19 vaccine is 95% effective and expects to apply for emergency authorization "within days," which follows a similar report from Moderna's (MRNA) on Monday. The momentum faded throughout the day, however, pressured by reports that New York City will again halt in-person instruction for their public schools, one of several examples of a cascading "third wave" of shutdowns across the country. All 11 GICS equity sectors finished in negative territory today, weighed down by the Energy (XLE), Utilities (XLU), and Healthcare (XLV) sectors.

Homebuilders and the broader Hoya Capital Housing Index were again among the outperformers today on another strong slate of housing data this morning. The Census Bureau reported today that Housing Starts in October were 14.2% higher than last year while Building Permits rose 2.8% year-over-year - each above consensus estimates - as the red-hot U.S. housing industry has exhibited few signs of cooling into the Autumn months. The gains during the pandemic have been powered entirely by a surge in single-family home construction, which rose another 6.4% in October while multifamily starts pulled back by 3.2% amid an ongoing post-pandemic "suburban revival."

This follows data yesterday which showed that the NAHB Homebuilder Sentiment Index - a leading indicator of housing activity - climbed to 90 in November to fresh record-highs, up 5 points from last month's prior record-high of 85. Also today, the Mortgage Bankers Association reported that mortgage applications to purchase a single-family home are now higher by 26% from last year while refinancing applications are now higher by 98% from last year, strength that has been powered by a confluence of near-term factors and long-term tailwinds that have converged over the last six months to generate a highly favorable environment for the housing industry.

The effects of the booming U.S. housing market has extended far beyond the homebuilders themselves, however, as home improvement retailers are also reporting blowout sales figures. Lowe's (LOW) reported that comparable same-store sales were higher by 30.1% in the third-quarter, smashing consensus estimates of +22.8%. Yesterday, Home Depot (HD) reported similarly stellar results with comparable-store sales rising 24.1% in Q3, topping consensus estimates of 16.9%. Despite soaring sales, both home improvement retailers have been under pressure this week on margin-related concerns related to higher labor costs amid the ongoing pandemic.

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