Housing Shortage • REITs Lead • Virus Mutation
REITs, ETF investing, Dividend Investing, Homebuilders
Seeking Alpha Analyst Since 2012
Real Estate • High Yield • Dividend Growth
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Summary
- U.S. equity markets were mixed Tuesday as concerns over the ramifications of a potential virus mutation in Europe offset the approval of the long-delayed fiscal stimulus renewal in the United States.
- Finishing lower for the third-straight day, the S&P 500 declined by 0.21% today but the tech-heavy Nasdaq 100 finished in positive territory. The Dow Jones Industrial Average retreated by 201-points.
- Led by the "essential" property sectors, real estate equities were leaders on the day as the broad-based Equity REIT ETF finished higher by 0.7% with 13-of-18 property sectors in positive-territory.
- Existing Home Sales in November were higher by 25.8% from last year to 6.69 million, which was the highest sales rate for November since 2005. Prices were nearly 15% higher from last year.
- Underscoring the mounting housing shortage, inventory of existing homes dipped 22.0% from last year, representing a 2.3-month supply at the current sales pace, the lowest in the survey's history.
Real Estate Daily Recap
Our Real Estate Daily Recap discusses the notable news and events in the real estate sector over the last trading day and highlights sector-by-sector performance. We publish this note in its entirety on The REIT Forum and post this condensed version on our website and Seeking Alpha blog to cover significant news and events. Subscribe to our free email list to keep up with the latest developments in the commercial and residential real estate sectors. Follow our real-time commentary on Twitter and LinkedIn.
U.S. equity markets were mixed Tuesday as concerns over the ramifications of a potential virus mutation in Europe offset the approval of the long-delayed fiscal stimulus renewal in the United States. Finishing lower for the third-straight day, the S&P 500 ETF (SPY) declined by 0.2% today but the tech-heavy Nasdaq 100 (QQQ) finished in positive territory. The Dow Jones Industrial Average (DIA) retreated by 201 points. Led by the "essential" property sectors, real estate equities were leaders on the day as the broad-based Equity REIT ETF (VNQ) finished higher by 0.7% with 13 of 18 property sectors in positive territory. Mortgage REITs (REM) finished flat on the day.
The "reopening trade" was back in vogue today as Mid-Caps (MDY) gained 0.5% while Small-Caps (SLY) were higher by 0.4%, each outperforming the large-cap indexes. Despite that, 9 of the 11 GICS equity sectors were in negative territory on the day with just the Technology (XLK) and Real Estate (XLRE) sectors finishing higher on the day. Homebuilders and residential REITs lifted the Hoya Capital Housing Index to another day of gains as well as housing data this morning showed a mounting shortage of homes for sale.
On that point, the National Association of Realtors reported this morning that Existing Home Sales in November were higher by 25.8% from last year to 6.69 million, which was the highest sales rate for November since 2005. Sales were lower by 2.5% from last month's multi-decade highs, however. The median existing-home price was $310,800, 14.6% more than in November 2019. Seventy-three percent of homes sold in November 2020 were on the market for less than a month. We'll see New Home Sales data tomorrow.
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 22.0% from last year, representing a 2.3-month supply at the current sales pace, the lowest in the survey's history. The inventory of new homes for sale is now lower by 13.4% from last year while the Months' Supply of new homes stands at just 3.3 months, down from a recent peak of 7.4 months late 2018.
Commercial Equity REITs
Apartments: The National Multifamily Housing Council's Rent Payment Tracker reported today that 89.8% of renters paid their rent by December 20th, which was 3.4 percentage points below the pre-pandemic rate last December. While this was a sharp improvement from the collection rate through the prior report on December 6th, this year-over-year decline was still the largest this year. Until this month, rent collection has only been about 2 percentage points below last year's levels, and apartment REIT rent collection averaged over 97% in Q3. Just as the housing industry was a primary beneficiary of the initial round of stimulus, a fresh round of relief should provide added support to shore up some of the less robust segments of the housing market, particularly the Class B/ C urban apartment markets.
Industrial: Today, we published Oasis of Dividend Growth. While the coronavirus pandemic has slammed much of the REIT sector, the "essential" property sectors - housing, industrial, and technology - have been a rare "oasis of growth" this year. Industrial REITs are poised to record the strongest dividend and FFO growth rates among major property sectors this year at nearly 10%. Eight of thirteen industrial REITs have raised dividends. Recent earnings reports confirmed that fundamentals are ahead of pre-pandemic expectations. Similar to the housing industry, the trends of limited supply and robust demand should be a theme throughout the 2020s.
Hotel: This evening, we'll publish our updated hotel REIT report on The REIT Forum. Hotel REITs have been the single-best performing property sector over the last quarter, surging nearly 50%. In late September before this run-up, we concluded, "perhaps a more "pure play" on the success of a vaccine than even the pharmaceuticals themselves, the balance of risks for the better-capitalized hotel REITs may be skewed to the upside with dozens of vaccines and therapeutics in the pipeline." After this stellar run, however, hotel REITs are now the most expensive property sector based on consensus 2021 FFO multiples. We'll comment on the outlook for hotels in 2021 and on the recent IPO of Airbnb (ABNB) which is worth more than all 18 hotel REITs combined.
Mortgage REITs
As tracked in our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished lower by 0.3% today and are now lower by 0.6% on the week. Commercial mREITs finished higher by 0.5% today but remain lower by 0.9% this week. Hunt Companies (HCFT) was the leader for the second-straight day after declaring a one-time special cash dividend of $0.04 per share, which is in addition to its dividend increase announced last week. HCFT is one of just two mREITs along with Arbor Realty (ABR) that will pay a higher dividend for full-year 2020 than in 2019.
REIT Preferreds & Bonds
As tracked in our REIT Preferred Stock & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished lower by 0.71%, on average, but outperformed their respective common stock issues by an average of 0.66%. Among REITs that offer preferred shares, the performance of these securities has been an average of 14.32% higher in 2020 than their respective common shares. The average REIT preferred trades at a 5% discount to Par Value and has an average current yield of 6.81%.
Economic Data This Week
We have another jam-packed slate of economic and housing data in the Christmas-shortened week. On Wednesday, we'll see New Home Sales data for November, which are expected to continue their strong post-pandemic rebound. On Wednesday, we'll also see the FHFA House Price Index for October which is likely to show a continued reacceleration in home price appreciation, as well as the weekly MBA Mortgage Applications data. Markets close early on Thursday and will be closed on Friday for Christmas.
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