• Alex Pettee, CFA

Powell Renewed • Housing Market Momentum • Week Ahead

Summary

  • U.S. equity markets faded into the close on Monday, giving back early-session gains that came after the renomination of Fed Chair Powell to a second-term and after better-than-expected housing data.

  • Following gains of 0.4% last week, the S&P 500 slipped 0.3% today while the Mid-Cap 400 held on to gains of 0.2% and the Small-Cap 600 finished higher by 0.7%.

  • Real estate equities were mixed today as the Equity REIT Index declined 0.5% today with 8-of-19 property sectors in positive territory while Mortgage REITs finished flat.

  • The renomination of Fed Chair Powell sent the 10-Year Treasury Yield higher by 9 basis points on the session to 1.63% as investors priced in a higher certainty of at least one Fed Funds rate increase by the middle of 2022.

  • Despite record-low low inventory levels, Existing Home Sales advanced another 0.8% in October as the secular tailwinds of strong demographics and "Work From Home" shifts continue to drive demand.

Income Builder Daily Recap

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U.S. equity markets faded into the close on Monday, giving back early-session gains that came after the renomination of Fed Chair Powell to a second term and after better-than-expected housing market data. Following gains of 0.4% last week, the S&P 500 slipped 0.3% today while the Mid-Cap 400 held on to gains of 0.2% and the Small-Cap 600 finished higher by 0.7%. Real estate equities were mixed today with retail REITs leading to the upside as the Equity REIT Index declined 0.5% today with 8-of-19 property sectors in positive territory while Mortgage REITs were flat.

The renomination of Fed Chair Powell sent the 10-Year Treasury Yield higher by 9 basis points on the session to 1.63% as investors priced in a higher certainty of at least one Fed Funds rate increase by the middle of 2022. Six of the eleven GICS equity sectors finished higher on the day while the more inflation-sensitive sectors including Technology (NYSEARCA:XLK) and Communications (XLC) sectors were under pressure. As discussed in our Real Estate Weekly Outlook report, before the rebound today, yields had pulled back last week following the reimposition of economic restrictions in several countries this week.

There was also more good news on the housing front as well as Existing Home Sales data for October was significantly better-than-expected, rising 0.8% from last month to a seasonally adjusted annualized rate of 6.34 million units. The resilience in home sales comes despite record-low inventory levels with the number of unsold homes declining 12% year-over-year to 1.25 million – equivalent to 2.4 months of the monthly sales pace. Properties typically remained on the market for just 18 days in October, while 82% of homes sold in October 2021 were on the market for less than a month.

Equity REIT Daily Recap

Industrial: Today we published Empty Shelves, Ample Opportunity - which discussed how the red-hot industrial property market - "ground zero" of supply-chain shortages - continues to ride a historic demand-supply imbalance as businesses scramble to build out supply resiliency. Industrial REITs - which recorded the strongest dividend and FFO growth of any real estate sector in 2020 - continue to thrive amid "extreme competition" for logistics and distribution space. Logistics REITs surely aren't cheap, but absent significant efficiency gains in warehouse utilization, the secular tailwinds of limited supply and robust demand should persist into the back half of this decade.

Today, we also published our State of the REIT Nation report exclusively on Income Builder. REITs are no longer cheap, but premium valuations have revived the "animal spirits" and sparked a much-needed wave of M&A and IPO activity which has facilitated accretive external growth. With six completed IPOs and four more on the way, 2021 will go down as the most active year for REIT IPOs since 2013. At the same time, several mega-sized nontraded REITs have scooped up public REITs. REITs have acquired nearly $50B in net assets over the past year– the largest expansion in the asset base since 2015. External growth may be just getting started as REIT balance sheets - and access to capital - have never been stronger.

Economic Data This Week

We have another busy week of economic data and housing data in the Thanksgiving-shortened week ahead. Following better-than-expected Existing Home Sales data today, we'll see New Home Sales data on Wednesday, which is expected to be similarly strong at 800K. Also on Wednesday, we'll see inflation data with the PCE Price Index - the Fed's "preferred" measure of inflation - which is expected to show that consumer prices are rising at the highest level in over three decades. We'll also be watching a flurry of Purchasing Managers Index ("PMI") data throughout the week and the second look at Consumer Sentiment data for November.


We're excited to announce the launch of our new investment research service here on Seeking Alpha - Hoya Capital Income Builder. We've put together a great team of contributors from across the REIT, dividend, and ETF industry, so whether your focus is High Yield or Dividend Growth, we’ve got you covered with high-quality, actionable investment research and a comprehensive suite of tools and models to help build sustainable portfolio income targeting premium dividend yields of up to 10%. And of course, subscribers receive complete access to our investment research - including reports that are never published elsewhere - from Hoya Capital and our team of contributors.

Disclosure: Hoya Capital Real Estate advises two Exchange-Traded Funds listed on the NYSE. In addition to any long positions listed below, Hoya Capital is long all components in the Hoya Capital Housing 100 Index and in the Hoya Capital High Dividend Yield Index. Index definitions and a complete list of holdings are available on our website.

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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