Real Estate Stock Outlook

Jan. 21, 2014 10:51 AM ETBAC, MTG, NLY, XHB, IYR1 Comment
Markos Kaminis profile picture
Markos Kaminis
13.15K Followers

The week ahead for real estate relative stocks is meaningful though light of catalysts on the holiday shortened period. Last week was mixed for the group of real estate relatives we follow closely, due to a mix of economic, industry and company specific drivers. Here's what we see for the group for the week ahead.

The Week That Was

1-Week Chart at Yahoo Finance

It was a mixed week for the real estate relative group. Bank of America (BAC) obviously excelled on company specific news as it reported strong results for its quarter. MGIC Investment (MTG) outperformed on the week thanks to strong mortgage origination data, though we debunked that in this article. The company also benefited from relatively supportive mortgage news from the big banks, including Bank of America, which said it originated $90 billion in new residential loans in 2013.

Homebuilder shares and the SPDR S&P Homebuilders (XHB) languished because of a decrease in homebuilder sentiment, which we noted could be an early warning signal for real estate. Annaly Capital's (NLY) slide is more difficult to peg, but may have been the result of a fading capital flow factor, which we discussed this morning in our stock market preview. The iShares U.S. Real Estate ETF (IYR) likely benefited from lower 30-year treasury yields on the week, which drifted five basis points to 3.75%.

Real Estate Relative Security

Last Week

Year-to-Date

Last 12 Months

SPDR S&P 500 (SPY)

-0.3%

-0.1%

+24.4%

iShares U.S. Real Estate

+0.3%

+2.5%

-4.0%

SPDR S&P Homebuilders

-3.0%

-4.4%

+12.9%

Bank of America

+1.4%

+9.6%

+53.1%

Annaly Capital

-0.4%

+2.4%

-30.9%

MGIC Investment

+1.1%

+6.3%

+219%

The Week Ahead

Relative economic data includes just two reports this week, but they are important enough to move the group. First and foremost, the Existing Home Sales Report for December comes due on Thursday morning at 10:00 AM ET. Economists expect the annual pace of sales to steady at 4.9 million. Since this is seasonally adjusted data, it is absolutely neutral, but it is still negative for a recovering real estate market with a long way to go to normalization. The pace of sales is down significantly from the summer, and it fell in November by 4.3% from a pace of 5.12 million in October. Further decrease would be decidedly negative for the real estate group broadly speaking, and more so for the homebuilders and mortgage insurers. Bank of America has a broad range of lending sectors and will more closely follow interest rates than anything else here. Ironically, rising interest rates benefit BAC, as long as they do not rise so much that they constrict the economy.

Economic Data

Date of Report

Prior Result

Consensus

Mortgage Activity

Wednesday

+11.9%

NA

Existing Home Sales (Dec.)

Thursday

4.9 M

4.9 M

Mortgage Activity improved sharply last week, but it was against a holiday stricken period. Despite the data being seasonally adjusted, we've seen extreme fluctuation around holidays for this weekly data point. The Mortgage Bankers Association (MBA) Market Composite Index measuring mortgage applications broadly rose by 11.9%, with applications tied to home purchase up 12%. Obviously, the homebuilders' shares will be sensitive to that sub-data point. This week's data will be less noisy, so investors in the group will want to follow it more closely. In the forward week, we'll see influence from the Martin Luther King holiday.

Interest Rate Trend

Both 10-year and 30-year treasuries have dropped this month. 10-year treasuries are down 16 basis points to 2.84%, while 30-year yields are lower by 17 basis points. Short-term rates are down as well, which is bad news for BAC. However, Annaly Capital is up year-to-date, and probably benefiting from the rate trend and the coinciding decreased presence of the Fed in the mortgage securities market where it purchases securities.

The most pressing issue for this group is a recent economic question posed by labor market and other economic data points. If rates are coming down because there is a question about the state of the economic recovery, then all bets are off for the group. Since that is the trending belief, we expect these stocks to drift further this week for the most part. Company specific news will continue to play roles between names.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

This article was written by

Markos Kaminis profile picture
13.15K Followers
Markos N. Kaminis generated a 23% average annual return on "Strong Buy" stock selections over 5 years while working as a Senior Equity Analyst on Wall Street. As an internal whistle-blower, I sacrificed absolutely everything to do the right thing. And despite being an eyewitness and victim of terrorism on 9-11, I am currently volunteering at a busy border crossing helping Middle Eastern & North African refugees, most displaced by war or other horrors, to land safely in Europe. Despite my life experiences, I still have hope, and believe that we must persevere with patience (forgiveness), tolerance and love. I have determined to struggle for the better good of my brethren rather than for myself, and you'll see that play out over the course of the rest of my life. But I worked far too long and hard to become an excellent stock-picker to not incorporate this work into the fold. Markos N. Kaminis generated a 23% average annual return on "Strong Buy" stock selections over 5 years and ranked 2nd among a group of 60 analysts in-house as a Senior Equity Analyst over a seven-year period at Standard & Poor's. After proving his value in-house, he was promoted into a special role as an idea generator, supporting the portfolios of institutional clients as well as driving performance within S&P's recommended lists and portfolios. At times, Markos was responsible for up to 10% of the firm's entire "Strong Buy" list and is due a great deal of credit for the group's outstanding performance during his tenure. Markos followed a group of 30-40 Small and Mid-Cap firms, and was charged with finding new buy and sell candidates across industry sectors. He generated a 23% average annual return over five years on his "Strong Buy" recommendations, and 26% over three years ended 2004. He was ranked 1st of 60 analysts in-house for his "Strong Buy" performance over 4 years (2nd over 5). Markos also authored IPO research and wrote for high-level newsletters, The Outlook, Equity Insights and Emerging Opportunities, as well as for BusinessWeek Online. He represented his firm as an analytical expert commentator for major media, including television, Internet and through quotes and interviews in reputable publications. Besides predicting the stock market correction of 2015 through a series of prescient reports here in August. (see proof here: http://seekingalpha.com/article/3482226-investor-who-predicted-the-stock-market-correction-offers-an-update ), Markos also advised investors to buy stocks at the bottom of the market in mid-February 2016 and again post-Brexit at the trough, and to buy gold in January 2016 before the commodity started its move higher. More recently, he called the pickup in the economy for 2018, the upward move for stocks in 2018, and the breakout in oil, starting in June of 2017. See: June 15, 2017 – Buy Oil Back Now; August 1, 2017 – Why Oil Prices Will Break Out – The Demand Driver; September 30, 2017 – Why Oil Prices Can Break Out Part II: Vulnerable Supply; and January 26, 2018 – Up 44% Since Our June Bullish Turn – Oil Still Supported Here. While not perfect, over the years, Markos has made countless correct market and security calls for his followers, including forecasting the demise of J.C. Penney on the heralded CEO hire's disruptive plans, the bankruptcies of Washington Mutual and Pilgrim's Pride in the $30 and $20s, respectively, as well as the purchase of Facebook in the mid-$20s when it was considered a pariah post its IPO (today it is a market darling). Markos also warned of the real estate market collapse and the financial crisis in the early days of his blogging. What I personally want you to know about my plans: After witnessing the worst of Wall Street firsthand and having the ideal vision of my childhood career choice corrupted by reality, I almost switched to full-time charity work at age 40 and still have plans for several non-profit endeavors. The future is somewhat unknown, and I am open to employment offers for portfolio management or other ideas. While continuing to publish regularly, I expect to begin work on several book ideas that I believe are important for business, for our nation and for society. I may put  my stock selection skills, earned through blood, sweat and tears, to better use, and to make my own way. I would like to give investors something rare, a dignified partner who can manage money with integrity and a clear conscience about the degree of due diligence behind investment decisions... someone who cares more about your money than your wife. I hope readers will become followers of my column here & at my blog, so that when our numbers are substantial, we might start an investment fund or two. Prior to his Wall Street career, Mr. Kaminis spent time in the back-office, as a mutual fund accountant, where he managed for a time the work of two men. Before this, from age 11 to age 25, he worked as a carpenter's apprentice and carpenter with his father, in both commercial and residential projects. Mr. Kaminis has an intimate knowledge of the real estate (undergraduate degree in Real Estate and Finance) and construction market, as well as the restaurant industry. However, as a generalist stock analyst, he showed the ability to learn any and the most complicated of industries in short time - and he gamed every challenge presented to him. Mr. Kaminis earned his MBA at the Katz Graduate School of Business at the University of Pittsburgh, and his BA at Temple University in Philadelphia. However, Markos has been studying the stock market since age 13, when he determined his career path. He made his first investment at age 16, and funded much of his undergraduate education with the proceeds of his investing success. Mr. Kaminis continues to keep busy forecasting the economic path and securities market activity. Markos is considering the eventual start-up a long/short capital appreciation hedge fund. Such a fund would limit risk through beta reduction, using a diversification strategy targeting sector & industry and long & short position inclusion. At the same time, Markos' theoretical fund would seek maximum capital appreciation through the exploitation of Mr. Kaminis' inherent economic & market discernment gift and proven stock selection skills. Mr. Kaminis also has a team of a select few analysts, technicians, strategists and economists that he has been impressed by over the years, which he expects to tap for the project when the time is right. Mr. Kaminis welcomes your interest in such a potential forward effort, and looks forward to discussing his plans with those appropriate and within legal constraints. Markos toys with very early stage entrepreneurial efforts in the testing of certain business models, all of which he intends to tie to a planned non-profit project serving the most helpless among us. The tie will be that the businesses will give employment opportunity to individuals who would otherwise have difficulty finding gainful employment. It will house and heal the homeless, ex-convicts, those completing rehabilitation efforts for drug and other addictions, and others in need of help. Markos is currently Directing the widely syndicated blog he founded, "Wall Street Greek," and is writing for other well-known publications besides advancing several big ideas. Markos' column is syndicated across sites like the Boston Globe, Kiplinger Magazine, UPI and other reputable newspaper and TV websites, as well as private networks, Amazon Kindle, iPhone and more. In the past, he has written for RealMoney.com, Motley Fool and others. Requests to research specific companies are welcome, as we serve our readers. You may contact us via this blog's contact info. Mr. Kaminis welcomes you to follow him here at Seeking Alpha, where he is proud to be a long-time contributor to this strong team of writers. He considers the Seeking Alpha team and management close friends, and for you, people worth knowing and following. Visit his site: Wall Street Greek (http://www.wallstreetgreek.blogspot.com/)

Recommended For You

Comments (1)

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.