26 May

Wall Street Is Expecting a Big Downward Revision to Q1 GDP

WRITTEN BY Brent Nyitray, CFA, MBA

A big week ahead for real estate investors

We have some important real estate–related economic data this week, with the FHFA House Price Index (which is within a few percentage points of peak levels), the S&P/Case-Shiller Home Price Index, new home sales, pending home sales, and the second revision to first-quarter GDP. Wall Street is forecasting a big downward revision to -0.9% from 0.2%. We’ll also hear from luxury homebuilder Toll Brothers (TOL).

Wall Street Is Expecting a Big Downward Revision to Q1 GDP

Economic data this week

Let’s look at a rundown of this week’s economic data.

Monday, May 25, 2015:

  • markets closed for Memorial Day

Tuesday, May 26, 2015:

  • durable goods orders
  • FHFA House Price index
  • Case-Shiller Home Price Index
  • Markit US Composite PMI
  • Markit US Services PMI
  • new home sales
  • consumer confidence
  • Richmond fed
  • Dallas fed

Wednesday, May 27, 2015:

  • MBA (Mortgage Bankers Association) mortgage applications

Thursday, May 28, 2015:

  • initial jobless claims
  • Chicago Fed National Activity Index
  • pending home sales

Friday, May 29, 2015:

  • Q1 GDP (second revision)
  • personal consumption
  • personal consumption expenditures growth
  • Chicago Purchasing Manager
  • University of Michigan Consumer Sentiment

Earnings reports this week

Wednesday, May 27

  • Toll Brothers (TOL)

Impact on mortgage REITs

REITs such as MFA Financial (MFA) and American Capital Agency (AGNC) will focus on the home price indices, as these can affect prepayment speeds on mortgage-backed securities. The reading for personal consumption expenditures will be important as well. If GDP does turn out to be almost a 1% contraction, it’s hard to see how the Fed could raise rates in June.

Impact on homebuilders

Builders like Lennar (LEN) and PulteGroup (PHM) will focus on the home price data, like Case Shiller and the FHFA House Price Index. Pending home sales and new home sales are big numbers for them as well.

Investors interested in trading the mortgage REIT space via an ETF should look at the iShares Mortgage Real Estate Fund (REM). Investors interested in making directional bets on interest rates should look at the iShares 20+ Year Treasury Bond ETF (TLT).

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