All Things in Moderation

Vital Statistics:

	Last	Change
S&P futures	3,858	3.75
Oil (WTI)	79.24	-0.34
10 year government bond yield		3.83%
30 year fixed rate mortgage		6.49%

Stocks are higher this morning on optimism over China’s latest bout with COVID. Bonds and MBS are down.

Pending Home Sales fell 4% in November to the lowest level in 20 years. They are down a whopping 38% on a YOY basis. “Pending home sales recorded the second-lowest monthly reading in 20 years as interest rates, which climbed at one of the fastest paces on record this year, drastically cut into the number of contract signings to buy a home,” said NAR Chief Economist Lawrence Yun. “Falling home sales and construction have hurt broader economic activity.”

Note that sales tend to lag moves in the mortgage market by a couple of months, so sales today represent rates in October and November. Mortgage rates peaked in mid-November and have been falling since. The Spring Selling Season should see a pickup in sales. Geographically, the West has seen the biggest declines.

The WSJ had an interesting article about non-traded single-family REIT funds, which have outperformed their publicly traded counterparts by a lot this year. Blackstone’s BREIT fund has reported a gain of 8.5% this year, versus the bloodbath that has been the publicly-traded REIT stocks. About half of the assets in these private REITs is residential. Compare that to the stock price of Invitation Homes, a single family rental REIT, which is down 34% so far this year.

The outperformance means that a lot of the fast money in these funds want to ring the register and pull their money out. Blackstone has been forced to freeze redemptions, as has Starwood. If these funds are similar to American Homes 4 Rent or Invitation, they have heavy exposure to Southern California and Phoenix, which is where iBuyers like Zillow and Redfin have also been slammed. End-of-year redemptions could mean some forced selling for these funds, which would certainly impact property prices in these MSAs.

Transactions in general have been slowing in commercial real estate. This is usually a sign of falling prices. As interest rates increase, cap rates have to rise as well to reflect the cost of financing. I think this is most pronounced in office properties. Manhattan’s landlord – S.L. Green just cut its dividend to conserve cash.

Filed under: Economy |