This coming week in real estate should prove interesting and likely misleading, with a slew of dated data being measured. Five major economic reports will reach the wire, covering the real estate market, and a majority of them will measure inconsequential periods of time. That is because of all the change that has occurred over the last several months around the Fed and mortgage rates. As a result of potentially positive results, real estate relative securities may find some support. But I would use any strength to sell the stocks further, as the environment has meaningfully changed because of Fed tapering.
Of the data points of greatest market interest, the S&P Case Shiller Home Price Index and the FHFA House Price Index are closely watched, but they also offer some of the longest lagged data to regularly reach the wire. Both reports will measure the month of April, though we are about to enter July. Considering that mortgage rates are significantly higher since April, the nascent trend of improving home prices might be finding some friction more recently, and that is not going to be reflected in these reports because of their age. For what it's worth, economists surveyed by Bloomberg see prices higher by approximately 1.5% (in April), as reflected by the forecast for the seasonally adjusted 20-City Index of S&P Case Shiller.
Also, New-Home Sales will be reported for May this week, and may begin to reflect the change in mortgage rates that began during the same month. However, considering the illiquidity of the real estate market and the time required to buy a home, this data point may also miss the latest trends dictated by the recent Fed tapering announcements. Economists are looking for just a slight increase here to an annual pace of 460K sales, which would be up from April's pace of 454K. The news will not likely help homebuilders, given the change in the market dictated by the Fed. Last week, the shares of homebuilders tumbled sharply, with the SPDR S&P Homebuilders (XHB) and the shares of major player KB Home (KBH) declining by 6.3% and 8.5%, respectively. I see that trend continuing near term. If any price strength is gained here on data this week, I would use it to sell homebuilders further.
What should play more importantly is the latest mortgage activity data from the Mortgage Bankers Association, because it is right on top of current housing activity. Over the last six or so weeks, this report has shown a significant drop-off in mortgage activity commensurate with rising mortgage rates. As a result, the shares of major mortgage bankers like Citigroup (C) and those dealing in mortgage-backed securities like American Capital Agency (AGNC) have been hard hit of late, and reflect the long-term damage of the latest rate trend. This latest report will be especially interesting, since it will capture the Fed announcement of last week (it will measure the week ending June 21). Some believe there may be a near-term spike in home purchases due to buyers on the fence coming to market out of fear of rising rates. This may be so, but it would be a short-term and probably limited phenomenon.
Week Ending June 21
Bank of America (BAC)
Annaly Capital (NLY)
American Capital Agency
The latest Pending Home Sales data, due this Thursday, could be the most important data to reach the wire given that it measures contract signings and is a leading indicator for the huge existing home market. This latest report will cover the month of May, when rates began to edge higher. Even so, economists surveyed by Bloomberg see the Pending Home Sales Index up 1.0% for May. I think they may be missing the point, and the data could therefore disappoint them. This would offer more bad news for Bank of America, Annaly Capital, and the rest of the companies in the business of mortgage finance.
In conclusion, I'm suggesting real estate securities investors beware of deceptive and dated data this week, as it may offer some support to recently battered industry shares. Any strength gained on supported data should be used to sell the securities, in my view, given that the Fed is backing away from its extraordinary support of the real estate market.