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  • Alex Pettee, CFA

Tech Slumps • Yields Pull-Back • Return To Office?

Summary

  • U.S. equity markets finished mostly-lower Wednesday after softer-than-expected economic data and continued COVID issues in Europe have prompted some investors to trim expectations of global economic growth for early 2021.

  • Following declines of 0.8% yesterday, the S&P 500 declined by 0.6% today while the tech-heavy Nasdaq fell by 1.5%. The Dow Jones Industrial Average was lower by 3 points.

  • Real estate equities were mostly lower today as well. The broad-based Equity REIT ETFs finished off by 0.5% with 13-of-19 property sectors in negative territory while Mortgage REITs were flat.

  • After climbing for seven straight weeks, interest rates have pulled back this week as the 10-Year Treasury Yield declined for the fourth-straight session today to close at 1.61%.

  • The Mortgage Bankers Association reported that mortgage applications to purchase a home rose 3% compared with the previous week - the fourth straight week of increases - and was 26% higher than the same week one year ago.

Real Estate Daily Recap

U.S. equity markets finished mostly-lower Wednesday after softer-than-expected economic data and continued COVID issues in Europe have prompted some investors to trim expectations of global economic growth for early 2021. Following declines of 0.8% yesterday, the S&P 500 ETF (SPY) declined by 0.6% today while the tech-heavy Nasdaq 100 (QQQ) fell by 1.5%. The Dow Jones Industrial Average (DJI) was lower by 3 points. Real estate equities were mostly lower today as well as the broad-based Equity REIT ETFs (VNQ) finished off by 0.5% with 13-of-19 property sectors in negative territory while the Mortgage REIT ETFs (REM) finished flat.

After climbing for seven straight weeks, interest rates have pulled back this week as the 10-Year Treasury Yield declined for the fourth-straight session today to close at 1.61%. Five of the eleven GICS equity sectors finished in positive territory today, led to the upside by a rebound from economically-sensitive Energy (XLE), Industrials (XLI), and Materials (XLB) sectors while large-cap technology names were under pressure. Homebuilders and the broader Hoya Capital Housing Index were mixed today ahead of earnings this afternoon from KB Home (KBH) and Restoration Hardware (RH).

The retreat in interest rates is welcome news for the housing industry, which was showing signs of moderation from historically strong levels due in part to a recent jump in mortgage rates. The Mortgage Bankers Association reported this morning that mortgage applications to purchase a home rose 3% compared with the previous week - the fourth straight week of increases - and was 26% higher than the same week one year ago. The 30-year fixed mortgage rate increased to 3.36% last week - up 50 basis points since the beginning of the year - which in turn has reduced refinance incentives for borrowers as refinance activity dropped to its slowest pace since September 2020.

Commercial Equity REITs

Is the "Work-From-Home Era" here to stay? This evening, we'll publish our updated analysis on the Office REIT sector on The REIT Forum. Several recent surveys have suggested that some global corporations have scaled back plans to reduce their office space footprint. We think that it's too soon to declare victory, as COVID has accelerated the pre-existing trends of increased remote work and space efficiency. The permanent WFH effects will be uneven, however, and we theorize that commute times will play a major role in how quickly - and to what extent - employees return to the office. Remote working saves each employee 6-10 hours/week in cities with the longest commutes.

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Disclosure: A complete list of holdings and Real Estate and Housing Index definitions and holdings are available at HoyaCapital.com. Hoya Capital Real Estate advises an Exchange Traded Fund listed on the NYSE. Hoya Capital is long all components in the Hoya Capital Housing 100 Index.

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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