Economics, Housing, & Commercial Real Estate Analysis

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  • Alex Pettee, CFA

Housing Stays Hot [Daily Recap]

  • Strong housing data powered the U.S. equity markets to fresh record-highs on Wednesday, while investors cheered China's announced stimulus measures to counteract the economic fallout from the ongoing coronavirus outbreak.

  • The S&P 500 finished higher by 0.5% and the Dow Jones Industrial Average added 115 points while the 10-Year Treasury Yield gained 1 basis point to close at 1.57%.

  • The recently high-flying commercial REIT sector gave back some of its recent outperformance, however, in a clear "risk-on" trading pattern. The broad-based commercial REIT ETF dipped 1.3% on the day.

  • M&A news again the headline of the day after Simon and Brookfield formally announced the acquisition of Forever 21, which filed for bankruptcy in September, in a rather unprecedented move for the retail landlords.

  • The U.S. housing market continues to heat-up, confirmed this morning by robust Housing Starts and Building Permits data, which smashed through estimates. Building Permits climbed to 13-year highs.

Real Estate Daily Recap

Strong housing data powered the U.S. equity markets to fresh record-highs on Wednesday, while investors cheered China's announced stimulus measures to counteract the economic fallout from the ongoing coronavirus outbreak. After dipping 0.3% yesterday, the S&P 500 ETF (SPY) finished higher by 0.5% and the Dow Jones Industrial Average (DIA) added 115 points while the 10-Year Treasury Yield (IEF) climbed 1 basis point to close at 1.57%. The recently high-flying commercial REIT sector gave back some of its recent outperformance as the broad-based commercial Real Estate ETF (VNQ) dipped 1.3%, dragged down by the self-storage and shopping center sectors on another frenetic day of REIT earnings.

The U.S. housing market continues to heat-up, confirmed this morning by robust Housing Starts and Building Permits data, which smashed through estimates. The Hoya Capital Housing Index, the benchmark that tracks the performance of the US Housing Industry, briefly touched all-time highs, but ended the day flat. Single-family homebuilders led the charge today after TRI Pointe (TPH) reported better-than-expected earnings with net new home orders surging 52% from the same period last year. Homebuilding products firm Owens Corning (OC) jumped more than 4% after reporting strong results and providing an optimistic 2020 guidance, citing a "favorable market outlook for U.S. new residential construction." It'll be a busy afternoon of housing earnings with Zillow (Z) reporting results after the bell, as well as manufactured housing REIT Sun Communities (SUI).

A reversal of yesterday's trading action, the sector performance today was characteristic of a "risk-on" pattern with the Energy (NYSEARCA:XLE), Technology (XLK), and Financials (XLF) leading the way while the more yield-senstive Commercial Real Estate (VNQ), Utilities (XLU), and Consumer Staples (XLP) sectors were the laggards. For the year, REITs are now higher by 5.8% compared to the 5.1% gains from the S&P 500. Homebuilders, meanwhile, are higher by more than 15%. As discussed in our recent 2019 Real Estate Recap, REITs delivered their second-best year of the decade in 2019, delivering a total return of nearly 29%.

Continuing with the theme of the past two weeks, M&A news was the headline of the day after Simon Property Group (SPG) and Brookfield Property (BPY) formally announced the acquisition of Forever 21, which filed for bankruptcy in September, in a rather unprecedented move for the retail landlords. Authentic Brands and Simon Property will each own 37.5% of and Brookfield Property will own 25% of the intellectual property and operating businesses. Data Center REIT QTS Realty (QTS) was among the leaders after reporting solid results yesterday afternoon, which we'll discuss in our Data Center report published tomorrow. Troubled infrastructure REIT Uniti Group (UNIT) added to its recent gains on signs of a potential deal with bankrupt tenant Windstream Holdings in a messy ongoing saga. Self-storage REITs dragged on the downside after ExtraSpace (EXR) issued soft 2020 guidance as ample supply growth continues to pressure self-storage fundamentals despite solid demand.

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