Keepin' It Real 

Economics, Housing, & Commercial Real Estate Analysis

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  • Alex Pettee, CFA

Picking Up The Pieces [Daily Recap]

  • U.S. equity markets extended their declines on Monday as the combination of mounting coronavirus fears and dramatic dislocations in the oil market sent global stocks into relative free-fall.

  • Coming off gains of 0.5% last week, the S&P 500 finished lower by 7.7% while the Dow Jones Industrial Average dipped more than 2,000 points, the largest one-day point decline.

  • Crude Oil plunged more than 25% after OPEC+ failed to reach an agreement on supply cuts, adding another curveball to an already fragile market.

  • Besides U.S. Treasuries, there was nowhere to hide amid a sea of red. Erasing the 4.2% gains last week, the broad-based commercial Real Estate ETF finished lower by 7.7%.

  • The S&P 500 is again knocking on the door to "bear market territory" as the large-cap index is lower by roughly 19% from recent highs and is off by 15% since the start of the year.

Real Estate Daily Recap

U.S. equity markets extended their declines on Monday as the combination of mounting coronavirus fears and dramatic dislocations in the oil market sent global stocks to their worst day since the financial crisis. Coming off gains of 0.5% last week, the S&P 500 ETF (SPY) finished lower by 7.7% while the Dow Jones Industrial Average (DIA) dipped more than 2,000 points. Crude Oil (USO), meanwhile, plunged more than 25% after OPEC+ failed to reach an agreement on supply cuts, adding another curveball to an already fragile market. There was nowhere to hide amid a sea of red. Erasing the 4.2% gains last week, the broad-based commercial Real Estate ETF (VNQ) finished lower by 7.7% with all REIT sectors lower by at least 3% on the day.

Residential REIT sectors - manufactured housing, apartments, single-family rental, and self-storage - were again among the safer places to be in the REIT sector today. While no sectors would be entirely immune from the effects of a potential recession, we continue to believe that the U.S. residential real estate sector will prove to be a source of resilience amid this period of dramatic volatility. Owing to years of tight mortgage lending conditions and a generally slow post-recession recovery in homeownership, the housing market has undergone a period of significant deleveraging over the last decade. At the end of 2020, the mortgage debt service payment ratio as a percent of disposable income reached the lowest level on record at 4.12%. By comparison, this level was at 7.13% at the time that job growth turned negative in Q1 2008.

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