Weak economic data and earnings dominate the week
Last week didn’t have a lot of meaningful economic data, although new home sales came in much weaker than expected and the surge we saw in May was revised away. Existing home sales did come in better than expected. Finally, the Chicago Fed National Activity index showed manufacturing decelerated a bit in June.
On the earnings front, we heard from mall REIT heavyweight Simon Property Group, which announced good numbers and had its first conference call after the spinoff of its smaller malls into a new REIT. We also heard from the bigger diversified homebuilders PulteGroup (PHM) and D.R. Horton (DHI).
Commercial REITs will be encouraged by economic strength
Office REITs like Vornado Realty Trust (VNO) will be worried about the industrial data, which could signal a slowdown
Implications for mortgage REITs
Mortgage REITs, like Annaly (or NLY) and American Capital (or AGNC), are driven by interest rates. Rates have been in a tight trading range.
Last week didn’t have much in the way of market-moving data and bonds were more or less unchanged. REITs are certainly happy to see rates moving lower rather than higher.
Implications for homebuilders
It certainly appears the builders are happy to keep increasing prices and willing to live with lower unit growth. At some point, that game won’t work anymore. But for now, it appears the next quantum leap in housing—getting back to a semblance of normalcy—will be a 2015 event.