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  • Alex Pettee, CFA

Rents Keep Rising • China Lockdowns • Week Ahead

  • U.S. equity markets finished higher Monday in another choppy session as bond yields stabilized while energy prices retreated sharply after China initiated rolling COVID lockdowns in Shanghai.

  • Adding to two-straight weeks of gains and continuing the "top-heavy" performance pattern, the S&P 500 advanced 0.7% today while the tech-heavy Nasdaq 100 rallied 1.6%, but Small-Caps slipped 0.4%.

  • Real estate equities were among the leaders today as the Equity REIT Index advanced 1.1% with 13-of-19 property sectors in positive-territory while Mortgage REITs advanced 0.1%.

  • Zumper’s National Rent Report showed that through the first three months of the year, 2022’s national rent growth is outpacing 2021’s rent growth, rising nearly 13% from last year.

  • Employment data highlights another busy week of economic data in the week ahead, headlined by ADP Employment data on Wednesday, Jobless Claims on Thursday, and the BLS Nonfarm Payrolls report on Friday.

Income Builder Daily Recap

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U.S. equity markets finished higher Monday in another choppy session as bond yields stabilized while energy prices retreated sharply after China initiated COVID rolling lockdowns in Shanghai. Adding to two-straight weeks of gains and continuing the "top-heavy" performance pattern, the S&P 500 advanced 0.7% today while the tech-heavy Nasdaq 100 rallied 1.6%, extending a rally of over 14% from its recent lows earlier this month. Real estate equities were among the leaders today as the Equity REIT Index advanced 1.1% with 13-of-19 property sectors in positive-territory while Mortgage REITs advanced 0.1%.

As discussed in our Real Estate Weekly Outlook, equity markets have managed to grind higher despite the historically swift jump in Treasury yields after the Federal Reserve reiterated the central bank's aggressive stance to combat inflation last week. WTI Crude Oil (CL1:COM) pulled back more than 9% today, closing the session back below $105/barrel while the 10-Year Treasury Yield ticked lower by a basis point to 2.48%. Eight of the eleven GICS equity sectors finished higher today led to the upside by the Consumer Discretionary (XLY), Technology (XLK), and Real Estate (XLRE) sectors.

Employment data highlights another busy week of economic data in the week ahead, headlined by ADP Employment data on Wednesday, Jobless Claims on Thursday, and the BLS Nonfarm Payrolls report on Friday. Economists are looking for job growth of 488k in March following two-straight months of stronger-than-expected job growth while the unemployment rate is expected to decline to 3.7% from 3.8% in February. We'll also get the third and final revision to Q4 GDP data, which is expected to confirm that the U.S. economy was growing at a 7% rate at the end of 2021. We'll also see home price data with the Case Shiller Home Price Index on Tuesday and we'll also be watching Construction Spending on Friday and a flurry of Purchasing Managers' Index ("PMI") data throughout the week.

Real Estate Daily Recap

Single-Family Rental: This weekend, we published The American Dream, Now For Rent as an exclusive report for Income Builder members which discussed our updated outlook on the single-family rental sector. Too much demand, and not enough housing supply: Despite the double-digit surge in rental rates over the past year, rising mortgage rates have tilted the affordability scale further towards renting. Investors - primarily "mom and pop" landlords - account for a growing share of home purchases. Rising rates will likely accelerate the expansion of institutional ownership across the single-family space and the maturation of "built-for-rent" single-family development.

Apartments: Speaking of soaring rents, fresh data via Zumper’s National Rent Report showed that through the first three months of the year, 2022’s national rent growth is outpacing 2021’s rent growth. In Zumper’s March data, not only does the median one-bedroom nationally hit an all-time high at $1,400, but it represents a 2.5% increase for the year so far, ahead of the 1.9% growth at this time last year. The most rapid period of growth in 2021 came from May to October, when the median one-bed rent rose by “a shocking” 9.7 percent in just six months, Zumper’s report indicated.

Hotels: Last Friday, we published Spring Break Is Back - At Least For Some. Hotel REITs - one of just three property sectors in positive territory this year - entered 2022 with positive fundamental momentum and reasons for cautious optimism following four-straight years of underperformance. Sunbelt and leisure-focused markets continue to substantially outperform Coastal business-focused markets. Recent high-frequency data has been encouraging, contrasting with the gloomy attitude in confidence surveys. TSA Checkpoint data rebounded to 90% of pre-pandemic levels last week while average national hotel occupancy is back at its 20-year average.

Mortgage REIT Daily Recap

Per the REIT Rankings Tracker available to Income Builder subscribers, residential mREITs advanced 0.1% today while commercial mREITs slipped 0.2%. On a quiet day of newsflow, Sachem Capital (SACH) and Ellington Residential (EARN) were the strongest performers while TPG RE Finance (TRTX) and iStar (STAR) lagged on the downside. The average residential mREIT pays a dividend yield of 10.83% while the average commercial mREIT pays a dividend yield of 7.34%.

We recently launched Hoya Capital Income Builder - the new premier investment research service focused on real income-producing assets classes. 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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