Keepin' It Real 

Economics, Housing, & Commercial Real Estate Analysis

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  • Alex Pettee, CFA

REITs Gain | Retail Sales Cool | Housing Stays Hot

  • U.S. equity markets remained near record-highs on Tuesday following a busy slate of economic data and retail earnings that suggested that the U.S. consumer remains resilient despite heightened coronavirus concerns.

  • Following gains of 1.2% yesterday, the S&P 500 finished lower by 0.5% today while the Dow Jones Industrial Average retreated 167-points following yesterday's 471-point rally. Mid-Cap stocks set new all-time-records.

  • It was a mixed day for real estate equities as the Equity REIT ETF (VNQ) finished higher by 0.1% with 10 of the 18 property sectors in positive territory.

  • Housing Stays Red-Hot. The Homebuilder Sentiment Index - a leading indicator of housing activity - climbed to fresh all-time record highs in November with all three subcomponents exceeding prior highs.

  • Retail sales rose at a slower-than-expected rate in October, but still set fresh all-time highs. Home improvement spending continues to be a source of strength, confirmed by stellar earnings results from Home Depot this morning.

Real Estate Daily Recap

U.S. equity markets remained near record-highs on Tuesday following a busy slate of economic data and retail earnings that suggested that the U.S. consumer remains resilient despite heightened coronavirus concerns. Following gains of 1.2% yesterday, the S&P 500 ETF (SPY) finished lower by 0.5% today while the Dow Jones Industrial Average (DIA) retreated 167-points following yesterday's 471-point rally. It was a mixed day for real estate equities as the broad-based Equity REIT ETF (VNQ) finished higher by 0.1% with 10 of the 18 property sectors in positive territory. The Mortgage REIT ETF (REM) finished higher by 0.6% after jumping 3.4% on Monday.

The "sector rotation" theme continued Tuesday following the release of positive trial results from Moderna's (MRNA) COVID-19 vaccine candidate on Monday morning. While the large-cap indexes retreated from yesterday's all-time highs, the Mid-Cap ETF (MDY) eclipsed new record-highs while the Small Cap ETF (SLY) closed within 1% of fresh records after today's gains. Among GICS equity sectors, however, only the Energy (XLE) and Real Estate (XLRE) categories finished in the green today. Homebuilders and the broader Hoya Capital Housing Index were also among the leaders today following record-setting Homebuilder Sentiment data this morning and positive housing market commentary from Home Depot (HD), which noted: "Housing metrics are significantly stronger than when we entered this crisis.... our customers tell us their homes have never been more important."

One of the few areas of consistent strength throughout the pandemic has been the U.S. housing market, perhaps the most critical sector of the U.S. economy. Following a record plunge in April back to the lowest levels since 2011, Homebuilder Sentiment has not only fully recovered all of the lost ground from early in the pandemic, but has set a series of all-time record highs over the last three months. The Homebuilder Sentiment Index - a leading indicator of housing activity - climbed to 90 in November, up 5 points from last month's prior record-high of 85. All three subcomponents climbed to record-highs once again in November with Current Sales jumping to 96, Future Sales rising to 89, and Home Buyer Traffic climbing to 77. The West and South regions led the rebound with each regional index climbing to record highs in November.

Housing-related retail categories have seen a similar resurgence in recent months as the homebuilders themselves. While overall retail sales rose at a slower-than-expected rate in October, the home improvement category continues to be a source of strength. With growth of 19.5% over the last year, the Building Materials category is second only to e-commerce as the top-performing retail category. Confirming that theme, Home Depot (HD) reported stellar results this morning with comparable-store sales rising 24.1% in Q3, topping consensus estimates of 16.9%. The stock was pressured by the announcement that the company plans to invest ~$1B in annualized permanent compensation enhancements for frontline, hourly associates. Fellow home improvement retailer Lowe's (LOW) reports results tomorrow.

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