Housing Sector Leads Stocks To Record Week

Jul. 13, 2019 6:20 AM ETCCI, CONE, AMT, DLR, EQIX, IEF, ITB, IYR, MDC, NVR, PCH, PLD, PPG, QTS, RYN, SPY, VNQ, WY, XHB, ICF, O, VTR, OHI, NNN, SRVR, NAIL, HOMZ, HAUZ, HOML, VNQI, SCHH, XLRE, FRI, FREL, PPTY, RTL-OLD1, REIT.IND, REET, MTH, PHM, DHI2 Comments

Summary

  • Led by strength in the US housing sector, it was another record week for US equities as the S&P 500, Nasdaq, and Dow each climbed to new record highs.
  • Homebuilders jumped nearly 4% on the week, pushing their YTD gains back above 30%. Boosted by lower mortgage rates, forward-looking metrics indicate that the housing market is heating up again.
  • Confirming anecdotal evidence and commentary from homebuilders, JOLTs data suggests that the construction industry is having an increasingly difficult time sourcing skilled labor, a continuing headwind for the industry.
  • REITs traded sideways on the week with residential REITs leading the way after inflation data showed that rents are climbing at the fastest rate since 2017.
  • Outside of rising housing costs, inflation data remains benign. After months of cooling, CPI data was slightly warmer than expected due largely to an acceleration in shelter inflation.

Real Estate Weekly Review

Another week, another record high. Each of the three major US equity indexes climbed to new record highs on the week, with the S&P 500 (SPY) breaching 3,000 for the first time ever on a busy week of inflation data and Fed Chair Powell's testimony to Congress. Despite slightly warmer-than-expected inflation data, the Fed Chair reiterated that easier monetary policy was needed to address signs of cracks in the global economic recovery and stimulate inflation back towards their 2% target. Outside of rising housing costs, which was largely responsible for this month's slight pickup in inflation, CPI excluding Shelter has averaged less than 1% over the past half-decade.

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After rallying more than 2.5% last week, the broad-based REIT ETFs (VNQ and IYR) traded sideways on the week, ending the week lower by 0.1%. Somewhat remarkably, it was just the 7th down-week for REITs out 28 weeks so far in 2019, highlighting the consistent strength exhibited by the REIT sector this year. The residential REIT sectors led the way, with the student housing, single-family rental, and storage REIT sectors each climbing more than 1.5%. The industrial, hotel, and timber REIT sectors were the relative laggards on the week. After dipping below 2% earlier this month, the 10-year yield (IEF) has climbed in each of the past two weeks, ending the week higher by 6 basis points as oil prices surged another 5% on the week as the roller-coaster ride for commodity investors this year continues.

REITs

On the week, the Hoya Capital US Housing Index, which tracks the performance of the US housing industry, finished the week higher by 1.1%, jumping to another new record high. The housing sector was led by a nearly 4% surge in the Homebuilding (XHB and ITB) sector and strong

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