Santa Claus Rally • Home Sales Accelerate • COVID Pill

Summary

• U.S. equity markets advanced for the second-straight day following better-than-expected housing data and the release of several studies showing that Omicron may result in less-severe infections than prior variants.
• Adding to gains of 1.8% yesterday following a three-day skid, the S&P 500 advanced 1.0% today while the Mid-Cap 400 also gained 1.0% and the Small-Cap 600 climbed 1.2%.
• Real estate equities were broadly-higher today with the Equity REIT Index gaining 1.1% today with all 19 property sectors in positive territory while Mortgage REITs advanced 1.0%.
• Existing Home Sales increased for a third-straight month in November according to data released this morning from the NAR, consistent with recent data showing a reacceleration in housing market activity.
• This strong home sales data came despite record-low housing supply levels. The inventory of homes for sale stood at just 1.11 million at the end of November, down 9.8% from October and down 13% from a year ago.

Income Builder Daily Recap

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U.S. equity markets advanced for the second-straight day following better-than-expected housing data, the approval of a new COVID pill from Pfizer (PFE), and the release of several studies showing that Omicron may result in less-severe infections than prior variants. Adding to gains of 1.8% yesterday following a three-day skid, the S&P 500 advanced 1.0% today while the Mid-Cap 400 also gained 1.0% and the Small-Cap 600 climbed 1.2%. Real estate equities were broadly-higher today with the Equity REIT Index gaining 1.1% today with all 19 property sectors in positive territory while Mortgage REITs advanced 1.0%.

Volumes and corporate newsflow were both very light today ahead of the Christmas holiday and as government officials appear to be taking a more measured approach to COVID-related restrictions than many feared. All eleven GICS equity sectors were higher today, leading to the upside by the Consumer Discretionary (XLY) and Technology (XLK) sectors while Commodities also rebounded following an Omicron-related sell-off. Homebuilders and the broader Hoya Capital Housing Index were again among the leaders today following strong Existing Home Sales data.

On that point, Existing Home Sales increased for a third-straight month in November according to data released this morning from the NAR, consistent with recent data showing a reacceleration in housing market activity following a summer lull despite historically lean supply levels. Sales rose 1.9% last month from October to a seasonally-adjusted annual rate of 6.46 million units, the highest level in ten months. Through the first 11 months of this year, Existing Sales are higher by 10% from the same stretch of 2020. We'll see New Home Sales data for November tomorrow morning.

This strong home sales data came despite record-low housing supply levels. The inventory of homes for sale stood at just 1.11 million at the end of November, down 9.8% from October and down 13% from a year ago. At the current sales pace, that amounts to a 2.1 months’ supply, barely above historic lows for that metric. Properties typically remained on the market for just 18 days in November, equal to October and down from 21 days in November 2020. Eighty-three percent of homes sold in November 2021 were on the market for less than a month.

Equity REIT & Homebuilder Daily Recap

Office: Cousins Properties (CUZ) announced two strategic transactions in Downtown Austin, TX, selling 816 Congress, a 435k sf building for $174M and acquired the remaining 50% interest from its partners, Riverside Resources and Ironwood Real Estate, in 300 Colorado, a 369k sf building for $162.5M. As discussed in Office REITs: The New Normal, nearly two years after "two weeks to slow the spread," office utilization rates have recovered only a fraction of pre-COVID levels, particularly in dense coastal markets with longer and more transit-heavy commutes.

Casinos: Yesterday, we published Casino REITs: The House Always Wins. Casino REITs - the highest dividend-yielding REIT sector - have slumped over the last quarter amid renewed COVID concerns, but continue to provide strong value for income-oriented investors. Despite their ultra-long term triple net lease structures, casino REITs provide excellent inflation hedging characteristics. VICI Properties (VICI), in particular, has one of the most inflation-hedged lease structures of any REIT. We remain bullish on the Casino REIT sector as a whole, which we view as a more compelling - and perhaps "under the radar" - alternative to other seemingly "cheap" sectors facing stiffer secular headwinds.

Economic Data This Week

We have another day of economic and housing data on Thursday, as we'll see New Home Sales data which is expected to show similar strength as Existing Home Sales with sales expected to climb to the highest rate since April. We'll also see the PCE Index - the Fed's "preferred" measure of inflation - which is expected to show the fastest rate of consumer price increases since 1982. We'll also see Personal Income & Spending data as well as Consumer Sentiment data before the long Christmas weekend.

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Disclosure: Hoya Capital Real Estate advises two Exchange-Traded Funds listed on the NYSE. In addition to any long positions listed below, Hoya Capital is long all components in the Hoya Capital Housing 100 Index and in the Hoya Capital High Dividend Yield Index. Index definitions and a complete list of holdings are available on our website.

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.