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  • Alex Pettee, CFA

Lower Forever • Dividend Season • Housing Stays Hot

Summary

  • U.S. equity markets finished mixed Wednesday as relief that Congress is reportedly nearing a long-awaited fiscal stimulus deal was offset by lukewarm economic data and mixed signals from the Fed.

  • Finishing within a point of fresh record-highs, the S&P 500 finished higher by 0.18% today but the Dow Jones Industrial Average retreated by 45 points. Small-Caps and Mid-Caps lagged today.

  • Real estate equities were mixed today as the broad-based Equity REIT ETF (VNQ) finished higher by 0.1% with 10 of 18 property sectors in positive territory.

  • A busy slate of housing data this week has so far indicated that the red-hot housing industry has exhibited few signs of cooling into the winter months. Homebuilder Sentiment in December was the second-highest on record.

  • The Federal Reserve committee expects rates will remain near zero through 2023, conditions that should continue to provide a favorable backdrop for yield-sensitive segments like real estate.

Real Estate Daily Recap

U.S. equity markets finished mixed Wednesday as relief that Congress is reportedly nearing a long-awaited fiscal stimulus deal was partially offset by lukewarm economic data and mixed signals from the Fed. Finishing within a point of fresh record-highs, the S&P 500 ETF (SPY) finished higher by 0.2% today but the Dow Jones Industrial Average (DIA) retreated by 45 points. The tech-heavy Nasdaq 100 (QQQ) eclipsed record-highs, gaining 0.6%. Real estate equities were mixed today as the broad-based Equity REIT ETF (VNQ) finished higher by 0.1% with 10 of 18 property sectors in positive territory. The Mortgage REIT ETF (REM), meanwhile, finished off by 0.2% on the day.

The Federal Reserve committee expects rates will remain near zero through 2023, conditions that should continue to provide a favorable backdrop for yield-sensitive segments like real estate. 6 of the 11 GICS equity sectors finished in negative territory on the day, weighed to the downside by the Utilities (XLU), Industrial (XLI), and Energy (XLE) sectors. Homebuilders and the broader Hoya Capital Housing Index finished modestly higher ahead of earnings results this afternoon from Lennar (LEN) and as a busy slate of housing data this week has so far indicated that the red-hot housing industry has exhibited few signs of cooling into the winter months.



One of the few areas of consistent strength throughout the pandemic has been the U.S. housing industry - perhaps the most critical sector of the U.S. economy - which has seemingly served as the "backbone" of the early economic recovery. The Mortgage Bankers Association reported this morning that mortgage applications to purchase a single-family home - a forward-looking indicator of future home sales - are now higher by 26% from last year while refinancing applications are now higher by 105% from last year. The 30-Year Fixed Mortgage Rate stands at 2.85%, a fresh all-time series low.

Also this morning, the NAHB reported that its Homebuilder Sentiment Index - a leading indicator of housing activity - was the second-highest on record at 86, second-only to last month's record high of 90. Just as the housing industry was a primary beneficiary of the initial round of fiscal stimulus, we believe that a fresh round of relief will provide added support to shore up some of the less robust sub-segments of the housing market, particularly the Class B and C urban apartment markets which have seen an uptick in unpaid rents in recent months amid the "third wave" of economic shutdowns in several coastal cities.

As it relates to a V-shaped recovery, perhaps a "close second" to the housing industry in the velocity and magnitude of its rebound has been the retail industry. While overall retail sales rose at a slower-than-expected rate in November, several segments including the home improvement category continue to be a source of strength. With growth of 18.7% from last year, the Building Materials category is second only to e-commerce as the top-performing retail category. Overall retail sales, however, declined 1.1% in November due in part to the more modest, Covid-impacted Black Friday spending this year, but sales overall remain higher by 4.1% from last year.

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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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