Solid Week For REITs • Housing Boom Continues

Summary

• U.S. equity markets pulled-back Friday but finished the week with strong gains amid a strong start to corporate earnings season and data showing continued momentum behind the critical US housing sector.
• Ending the week with gains of 1.9%, the S&P 500 finished lower by 0.3% today while the Dow Jones Industrial Average gave back 179-points and the tech-heavy Nasdaq slipped 0.3%.
• Real estate equities finished their second-straight week of solid gains on the upside with the broad-based Equity REIT ETFs gaining 0.2% today with 10 of 19 property sectors in positive territory.
• Existing Home Sales were stronger-than-expected in December, reaching the fastest sales rate in 14 years as the U.S. housing sector continues to lead the broader economic recovery.
• No homes for sale. Inventory of existing homes dipped 23% from last year, representing 1.9-months of supply at the current sales pace, the lowest in the survey's history, driving a 12.9% jump in home prices.

Real Estate Daily Recap

U.S. equity markets pulled-back Friday but finished the week with strong gains amid a strong start to corporate earnings season and economic data showing continued momentum behind the critical U.S. housing sector. Ending the week with gains of 1.9%, the S&P 500 ETF (SPY) finished lower by 0.3% today while the Dow Jones Industrial Average (DIA) gave back 179 points and the tech-heavy Nasdaq 100 (QQQ) slipped 0.3%. Real estate equities finished their second-straight week of solid gains on the upside with the broad-based Equity REIT ETF (VNQ) gaining 0.2% today with 10 of 19 property sectors in positive territory while Mortgage REITs (REM) gained 0.3%.

While the major indexes were all lower on the day, Mid-Cap 400 (MDY) and Small-Cap 600 (SLY) indexes finished higher to finish the week essentially in-line with the large-cap S&P 500. Three of the eleven GICS equity sectors finished higher on the day, led to the upside by the Commerical Real Estate (XLRE), Utilities (XLU), and Communications (XLC) sectors. Homebuilders were leaders again today following another strong slate of housing data, lifting the Hoya Capital Housing Index to fresh record-highs.

We'll publish a full analysis and commentary of this week's economic data in our Real Estate Weekly Outlook report published on Saturday morning.

Housing Continues to Lead Recovery

On that point, the National Association of Realtors reported this morning that Existing Home Sales were stronger-than-expected in December, reaching the fastest sales rate in 14 years. Existing Sales rose by 22.2% from last year and 0.7% from the prior month to 6.76 million. The median existing-home price was $309,800, 12.9% higher than in December 2019. The positive momentum has shown few signs of slowing, according to data from Redfin (RDFN), which reported that their measure of pending home sales was up 32% year over year while their Redfin Homebuyer Demand Index was up 50% from pre-pandemic levels in January and February of 2020—the highest level on record.

Ironically, one of the emerging constraints on the further upside for New and Existing Home Sales is the simple lack of homes available to sell. On the existing sales side, the NAR reported that inventory of existing homes dipped 23.0% from last year, representing 1.9-months of supply at the current sales pace, the lowest in the survey's history. The inventory of new homes for sale is now lower by 11.2% from last year while the Months' Supply of new homes stands at just 4.1 months, down from a recent peak of 7.4 months late 2018. Redfin noted that 40% of homes that went under contract had an accepted offer within the first two weeks after listing, selling for 99.3% of asking price.

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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.