REIT And Homebuilders Sink As Treasury Yields Climb

Real Estate Weekly Review
Following their best three-week stretch since 2016, REITs pulled back this week as the 10-year yield climbed to the highest level since 2011. The real estate ETFs (VNQ and IYR) dipped 3%, significantly underperforming the 0.6% decline in the S&P 500 (SPY). Solid US economic data and surging oil prices have boosted both real yields and inflation expectations. There is mounting evidence that tax cuts added another leg to the economic recovery.
Concern is escalating, however, that rising energy prices will reverse the positive economic momentum. As REIT valuations have been driven almost entirely by macroeconomic conditions in recent months, commodity prices, through their impact on inflation and interest rates, have become an important factor to watch for real estate investors. The most significant culprit of rising inflation expectations has been crude oil (USO), which finished the week up another 1%. Mirroring energy prices, the 10-Year yield busted through the 3.0% level to finish the week at 3.07%. Despite booming US production, oil prices are up 40% YoY as OPEC continues to restrict production, aided by the collapse of Venezuela’s oil production capability.

(Hoya Capital Real Estate, Performance as of 1pm Friday)
Homebuilders (XHB) dipped another 2% this week as, mirroring the 10-year Treasury yield, 30-year mortgage rates climbed to their highest level since 2011. The MBA 30-year mortgage rate climbed to 4.77% this... Read more