Economics, Housing, & Commercial Real Estate Analysis

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  • Alex Pettee, CFA

Weekly Review: REITs Climb In Risk-Off Rally As Yields Flirt With 18-Month Lows

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  • REITs climbed more than 1% this week, extending their 2019 outperformance over the major indexes. Ongoing trade tensions and geopolitical uncertainty have strengthened investor demand for the domestic-focused REIT sector.

  • Lower benchmark yields continue to provide a strong economic backdrop for real estate outperformance. The 10-year yield and 30-year mortgage rate are each flirting with nearly 18-month lows.

  • Housing Starts and Homebuilder Sentiment data beat expectations this week as lower yields and strong recent growth in household formations point to a solid housing recovery in 2019.

  • Homebuilders jumped nearly 2%, but Homebuilding Products and Home Furnishings firms were hit by fears over rising input costs from tariffs even after news of progress on the USMCA.

  • Retail sales stumbled in April, but have held-up rather well overall in 2019 following a slowdown in late 2018. Strong results from Walmart and Macy’s kicked-off earnings season for retailers.

Following the worst week of 2019 for the major equity indexes, the S&P 500 (SPY) finished the week lower by another 0.7% as trade talks have reportedly broken down between the US and China. Progress on North American trade relations and a delay of the European auto tariffs were welcome news for investors, who have flocked to bonds and domestic-focused equity sectors in recent weeks, taking the 10-year yield down near 18-month lows. REITs (VNQand IYR) continue to be among the stronger-performing equity sectors of 2019, climbing more than 1% this week led by the more yield-sensitive segments of the real estate sector.

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