• Alex Pettee, CFA

Yields Down • REITs Up • Housing Shortage

Summary

  • U.S. equity markets were mostly higher Monday, led by a rebound in large-cap technology stocks, as long-term interest rates pull-back from 14-month highs on renewed COVID concerns in Europe.

  • Bouncing back from declines of 1.2% last week, the S&P 500 gained 0.7% today while the tech-heavy Nasdaq 100 jumped 1.9%. The Dow Jones Industrial Average gained 103 points.

  • Residential REITs led real estate equities higher today as well as the broad-based Equity REIT ETFs (VNQ) gained 0.7% today with 12-of-19 property sectors in positive territory.

  • Washington Prime (WPG) dipped more than 10% on reports that the mall REIT is looking for $150M in bankruptcy financing.

  • Homebuilders and the broader Hoya Capital Housing Index were higher today after Existing Home Sales data showed that housing inventory levels dipped to historically low levels as demand continues to outpace supply.

Real Estate Daily Recap

U.S. equity markets were mostly higher Monday, led by a rebound in large-cap technology stocks, as long-term interest rates pull-back from 14-month highs on renewed COVID concerns in Europe and several U.S. cities. Bouncing back from declines of 1.2% last week, the S&P 500 ETF (SPY) gained 0.8% today while the tech-heavy Nasdaq 100 (QQQ) jumped 1.9%. Residential REITs led real estate equities higher today as well as the broad-based Equity REIT ETFs (VNQ) gained 0.7% today with 12-of-19 property sectors in positive territory while the Mortgage REIT ETFs (REM) finished fractionally higher.

As discussed in our Real Estate Weekly Outlook, investors remain jittery about the steady march higher in long-term interest rates amid a rise in inflation and growth expectations, but COVID concerns in Europe dragged the 10-Year Treasury Yield back below 1.70% today. Seven of the eleven GICS equity sectors finished in positive territory on the day, led to the upside by the Technology (XLK) and Real Estate (XLRE) sectors. Homebuilders and the broader Hoya Capital Housing Index were also higher today after Existing Home Sales data showed that housing inventory levels dipped to historically low levels as demand continues to outpace supply.

On that point, the National Association of Realtors reported this morning that Existing Home Sales were weaker-than-expected in February as historically low inventory levels have emerged a constraint on sales. Existing-home sales fell 6.6% in February to a seasonally-adjusted annual rate of 6.22 million, but sales are still 9.1% higher than last year. The median existing-home sales price rose to $313,000, 15.8% higher from one year ago, with all regions posting double-digit price gains. As of the end of February, housing inventory remained at a record-low of 1.03 million units, down by 29.5% year-over-year – a record decline. Properties typically sold in 20 days, also a record low.

Economic Data This Week

We have another jam-packed slate of economic and housing data in the week ahead. Today, we saw Existing Home Sales data, and tomorrow, we'll see New Home Sales data for February. While housing demand has remained at historically strong levels, the mere lack of available homes to sell has emerged as a near-term constraint on further upside. On Thursday, we'll see the second revision to fourth-quarter GDP. On Friday, we'll get some inflation data with the Core PCE Index - the Fed's "preferred" inflation metric - and get a look at Personal Income and Spending data from February.

Commercial Equity REITs

Office: Mack-Cali Realty (CLI) pulled back 1.3% today after it announced last Friday afternoon that it will continue to suspend its common dividend for the remainder of 2021. The Board intends to revisit the resumption of its quarterly dividend in the first quarter of 2022. As discussed in REITs: This Time Was Different, while dividend increases have been a theme across the REIT sector this year with nearly 70 REITs REITs boosting their payouts across the equity and mortgage REIT sectors, several harder-hit property sectors including office REITs are far from out of the woods.

Malls: Washington Prime (WPG) dipped more than 10% after Bloomberg News reported the shopping mall owner's investment bank has approached investors to gauge early interest in providing a potential $150M in bankruptcy financing. Last week, WPG confirmed that it was in talks to restructure its balance sheet and that such a restructuring could be in the form of Chapter 11 bankruptcy. CBL Properties (OTCPK:CBLAQ) - which entered Chapter 11 bankruptcy last November - jumped 60% after it announced an amended and restated restructuring support agreement ("RSA") with its credit facility lenders and unsecured noteholders, potentially setting the company up for emergence from Chapter 11 proceedings. As discussed last week in Mall REITs: It Can Always Get Worse, despite improving rent collection and foot traffic, earnings reports revealed that Q4 was another epically-bad quarter.

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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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