Must-know releases driving bonds, homebuilders, and REITs (Part 5 of 6)
Last week’s releases
We had some important housing-related data last week, with the Case-Shiller and FHFA Home Price Indices. The Case-Shiller index showed that home prices continue to improve, and the FHFA index showed that houses in a certain subset are within 10% of their peak levels. We also had new home sales and pending home sales come in lower than expected, although weather certainly played a part. We should get a better read on how the spring selling season is shaping up when the builders report first quarter numbers in a few weeks.
Some stronger-than-expected economic data
We had some Fed reports, with the Chicago Fed National Activity Index, the Richmond Fed, and the Kansas City Fed. The most important things to come out of these were basically the message that manufacturing is optimistic about the upcoming six months. Finally, we had the third revision to GDP on Thursday, which bumped up the final estimate to +2.6%. That said, we saw some sell-side firms take down their Q1 numbers last week.
We heard from KB Home (KBH) and Lennar (LEN) recently. Both reported strong numbers, and average selling prices continue to rise. The homebuilding segment has definitely been a case of two sectors—the luxury sector, which is doing extremely well, and the first-time homebuyer sector, which is getting bombarded by increasing real estate prices, increasing interest rates, and a lousy job market.
Commercial REIT earnings
Commercial REITs in the retail space like Simon Property (SPG) and General Growth Properties (GGP) will take comfort in the personal income and personal spending data. Incomes and spending continue to rise, albeit not as fast as the Fed would like. Still, increases in income are needed to drive further consumption, and inflation (along with wage inflation) remains stubbornly low.
Implications for mortgage REITs
Mortgage REITs, like Annaly (NLY) and American Capital (AGNC), are driven by interest rates. Nothing last week was market-moving in the bond market. Interest rates rallied as investors became more comfortable with the idea that the Fed isn’t looking to raise rates too soon (people seem to have digested the possibility (although probably unlikely) that the Fed will start hiking rates at the June 2014 FOMC meeting.
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