Why REITs like Vornado were let down by last week’s releases

Market Realist

Key releases that could affect your REIT and homebuilder portfolio (Part 2 of 6)

(Continued from Part 1)

Last week was punctuated by a disappointing GDP growth number

After a couple of data-light weeks, we finally had some important data last week. On Monday, we had the durable goods number and a couple of real estate indices. On Thursday, we had the second revision to first quarter GDP, which came in well below expectations, at -1%. Finally, we had personal income and personal spending of Friday.

Commercial REITs will be encouraged by economic strength

Commercial REITs in the retail space, like Simon Property (SPG) and General Growth Properties (GGP), will certainly be disappointed with the GDP report, which came in negative for the first quarter. That said, bad weather drove the decrease, so it’s premature to suggest that the number means we’re on our way to a recession. Office REITs like Vornado Realty Trust (VNO) will focus on GDP as well, to see if hiring is picking up, which will drive vacancy rates.

Implications for mortgage REITs

Mortgage REITs, like Annaly (NLY) and American Capital (AGNC), are driven by interest rates, which have been in a tight trading range. Investors are becoming more comfortable with the idea that the Fed isn’t looking to raise rates too soon (people seem to have digested the possibility, although it’s probably unlikely, that the Fed will start hiking rates at the June 2015 FOMC meeting).

Implications for homebuilders

Homebuilders like PulteGroup (PHM) and D.R. Horton (DHI) will focus on the macroeconomic data as well as the home price indices. The pending home sales data was disappointing, and it’s suggesting that this year’s spring selling season isn’t as strong as we hoped. For investors who were hoping for a big jump in homebuilding, and seeing housing starts close to normalcy (starts around 1.5 million units per year), it looks like 2014 isn’t going to be the year it happens.

Continue to Part 3

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