Keepin' It Real 

Economics, Housing, & Commercial Real Estate Analysis

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  • Alex Pettee, CFA

Retail Rebound • Fixer Upper • REIT Earnings

Summary

  • U.S. equity markets were mixed Wednesday as concerns over the inflationary and economic impact of the Southern 'Deep Freeze' was offset by a strong slate of economic and housing data.

  • Following declines of 0.1% yesterday, the S&P 500 finished fractionally lower today while the Dow Jones Industrial Average finished higher by 90 points. Treasury yields were flat at mid-pandemic highs.

  • Real estate equities were mixed today amid a very busy 24-hours of earnings reports as the broad-based Equity REIT ETFs finished lower by 0.1% with 14-of-19 property sectors in negative-territory.

  • Homebuilder Sentiment Index - a leading indicator of housing activity - ticked higher to 84 in February, the third-strongest month on record. Mortgage applications to purchase a home are now higher by 15% from last year as demand has shown no signs of cooling.

  • Retail Sales were far stronger than consensus estimates in January. Consumers continued to spend on housing-related goods. Furniture sales surged 12% in the month while spending on Building Materials products were 19% higher from last year.

Real Estate Daily Recap

U.S. equity markets were mixed Wednesday as concerns over the inflationary impact of the Southern 'Deep Freeze' were offset by a strong slate of economic data as retail sales and homebuilder sentiment both topped estimates. Following declines of 0.1% yesterday, the S&P 500 ETF (SPY) finished fractionally lower today while the Dow Jones Industrial Average (DIA) finished higher by 90 points. Real estate equities were mixed today amid a very busy 24-hours of earnings reports as the broad-based Equity REIT ETFs (VNQ) finished lower by 0.1% with 14-of-19 property sectors in negative territory while the Mortgage REIT ETFs (REM) dipped 2.0%.

Eight of the eleven GICS equity sectors finished in positive territory today, led to the upside by another strong day from the Energy (XLE) sector while Financials (XLF) have also delivered a strong week as the 10-Year Treasury Yield (IEF) remained at the highest levels since last March. Consistent with the pressure today on many of the top-performing stocks and sectors, homebuilders and the broader Hoya Capital Housing Index were mostly lower today despite a generally strong slate of housing data and earnings reports.

This morning, the NAHB reported that its Homebuilder Sentiment Index - a leading indicator of housing activity - ticked higher to 84 in February, the third-strongest month on record. Also this morning, the Mortgage Bankers Association reported that mortgage applications to purchase a home are now higher by 15% from last year as the housing industry remains a source of strength in the early economic recovery. However, applications for refinancing loans - which tend to be more interest-rate sensitive - have pulled back in recent weeks as mortgage rates have trended higher since hitting record lows in late January.

The Census Bureau reported that Retail Sales were far stronger than consensus estimates in January, surging by 5.3% from the prior month and were higher by 7.4% from last January before the pandemic began. Boosted by a second round of $600 stimulus checks, the strength was broad-based as all retail categories recorded a month-over-month increase. Consumers continued to spend on housing-related goods as Furniture sales surged 12% in the month while spending on Building Materials rose 4.6% to push its year-over-year gain to 19.0%. The department stores, clothing stores, and food services categories did show signs of life in January while e-commerce sales surged another 11.0% in January to push its annual increase to nearly 30%.

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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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