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The latest drivers for mortgage and commercial REITs and builders

Brent Nyitray, CFA, MBA

The FOMC meeting will dominate real estate headlines this week (Part 2 of 6)

(Continued from Part 1)

A quiet week after the jobs report

Typically, the week after the jobs report is slow, with not much data. Last week was no exception.

On Tuesday, we had the NFIB Small Business Optimism Report and also the JOLTS job openings report. Interestingly, job openings are at their highest levels since 2001. The NFIB Small Business Optimism report showed improving but still muted optimism. One of the big stories of this recovery has been the bifurcation between the big S&P 500 companies and everyone else.

On Friday, we got the retail sales data, which was reasonably strong. It looks like the back-to-school shopping season was strong. This bodes well for the all-important holiday shopping season.

Economic strength will encourage commercial REITs

Commercial REITs in the retail space, like Simon Property Group (SPG) and General Growth Properties (GGP), focused primarily on the retail sales data.

Office REITs like Vornado Realty Trust (VNO) and Boston Properties (BXP) focused on the JOLT job openings report, as employment drives vacancy rates.

Implications for mortgage REITs

Interest rates drive  mortgage REITs  like Annaly (NLY) and American Capital Agency (AGNC). Rates began backing up after the European Central Bank’s decision on asset purchases. Rates then continued their sell-off last week. The global bond market has driven bonds more than economic data.

Mortgage REITs that focus on origination will notice the 14-year lows in the MBA Mortgage Applications Index. This year has been dismal for the originators. The refinance business has largely dried up and the first-time homebuyer remains on the sidelines.

Implications for homebuilders

The builders were heartened by the strong reading on the University of Michigan Consumer Sentiment Index. Consumer sentiment is a big driver of home sales, as are interest rates.

We’re entering the seasonally weak period for the builders. For them, 2014 is more or less already in the books.

Continue to Part 3

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