• Alex Pettee, CFA

Inflation Anxiety • Sentiment Slumps • REITs Lead

Summary

  • U.S. equity markets were little-changed Friday - but held onto modest gains for the week - despite fresh data showing consumer sentiment plunging to the lowest level in a decade.

  • Finishing the week with cumulative gains of 0.7%, the S&P 500 finished higher by 0.2% today while the Mid-Cap 400 finished lower by 0.2% and the Small-Cap 600 retreated 0.7%.

  • Real estate equities were among the leaders today as the Equity REIT Index gained 0.5% with 12 of 19 property sectors in positive territory while Mortgage REITs gained 0.3%.

  • Ongoing concerns over inflation and escalating COVID anxiety sent the consumer sentiment index tumbling to 70.2 in its preliminary August reading, the lowest since 2011.

  • Pressuring the 10-Year Treasury Yield today were amplified questions over the fate of additional fiscal stimulus as Presidential approval ratings slumped below 50% in the FiveThirtyEight average for the first time.

Real Estate Daily Recap

U.S. equity markets were little-changed Friday - but held onto modest gains for the week - despite fresh data today showing consumer sentiment plunging to the lowest level in nearly a decade. Finishing the week with cumulative gains of 0.7%, the S&P 500 finished higher by 0.2% today while the Mid-Cap 400 finished lower by 0.2% and the Small-Cap 600 retreated 0.7%. The tech-heavy Nasdaq 100 gained 0.4%. Real estate equities were among the leaders today as the Equity REIT Index gained 0.5% with 12 of 19 property sectors in positive territory while Mortgage REITs gained 0.3%.

Ongoing concerns over inflation and escalating anxiety over the reaccelerating in COVID cases has weighed on consumer confidence in recent weeks, sending the University of Michigan’s consumer sentiment index tumbling to 70.2 in its preliminary August reading, the lowest since 2011. Pressuring the 10-Year Treasury Yield today - which tumbled 7 basis points - were amplified questions over the fate of additional fiscal stimulus as Presidential approval ratings of the Biden Administration have mirrored the slump in consumer confidence, dropping below 50% in the FiveThirtyEight average for the first time this week.

Seven of the eleven GICS equity sectors finished higher on the day, led to the upside by the Consumer Staples (XLP), and Utilities (XLU) sectors. Despite slipping today, homebuilders and the broader Hoya Capital Housing Index were among the leaders on the week, lifted by strong results from Rocket Mortgage (RKT), which sees "strong fundamental tailwinds" as the housing market has remained a source of resilience throughout both the pandemic and subsequent reopening. We'll publish a full analysis and commentary of this week's developments in our Real Estate Weekly Outlook report on Saturday morning.

Real Estate Earnings Updates

Net Lease: Shareholders of Realty Income (O) and VEREIT (VER) overwhelmingly approved all of the proposals necessary for closing the previously announced merger of VEREIT into Realty Income, expected to close during Q4 2021. Under the terms of the agreement, VEREIT shareholders will receive 0.705 shares of Realty Income stock for every share of VEREIT stock they own. Announced back in April, the deal is one of seven major REIT-to-REIT consolidations announced since the start of Q2 and we expect to see more to come in the months ahead as the "animal spirits" are alive and well across the REIT sector.

Apartment: Yesterday, we published Rents Are Soaring. After lagging early in the pandemic, Apartment REITs have surged nearly 40% this year as rental operators across the country have been "passed the torch" of the flaming-hot housing market. Apartment rents 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. Demographics suggested the 2020s were already poised to see historic housing demand, but the Work From Home era has begun to unleash millions of extra "deferred" formations among adult children. Apartment REITs reported that new lease rates soared 15% in July - the highest on record - as rents are now rising by double-digit rates across half of the major markets.

Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished higher by 0.2% today to end the week with 0.5% gains. Commercial mREITs gained 0.5% but finished the week off by 0.5%. AGNC Investment (AGNC) traded flat today after holding its monthly dividend stead at $0.12/share and providing an updated tangible Book Value Per Share ("BVPS") estimate of $16.28 per common share as of July 31, 2021, essentially flat from its reported BVPS as of the end of Q2.

REIT Preferreds & Capital Raising

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 0.22% today, on average, and outperformed their respective common stock issues by an average of 0.18%. So far in 2021, REIT Preferred stocks are higher by 8.69% on a price return basis. The average REIT preferred pays a current yield of 6.02% and trades at a slight premium to par value.

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: A complete list of holdings and Real Estate and Housing Index definitions and holdings are available at HoyaCapital.com. Hoya Capital Real Estate advises an Exchange Traded Fund listed on the NYSE. Hoya Capital is long all components in the Hoya Capital Housing 100 Index.

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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