Real estate stocks outperform broader market but still sink

Shares of Simon, CoStar and Marriott ticked up Friday after a volatile week that included signs of second wave of coronavirus infections

National /
Jun.June 12, 2020 01:45 PM
Federal Reserve Chairman Jerome Powell (Getty, iStock)
Federal Reserve Chairman Jerome Powell (Getty, iStock)

Real estate stocks recovered some of their losses after signs of a second wave of coronavirus infections pushed the broader market to one of its biggest single-day dips since mid-March. It was also a week that saw the Federal Reserve freeze interest rates for the foreseeable future, either providing stability for real estate investors, or cause for concern, depending who you ask.

Real estate investment trust ETFs outperformed the broader market, but remained 7 percent below where they were at the start of the week, following the surprisingly robust May jobs report.

Shares of a range of real estate companies, including Marriott International, CoStar and Simon Property Group all made gains on Friday but still ended the week lower. Simon, the country’s largest mall owner, said on Wednesday it was canceling its $3.6 billion deal to buy Taubman Centers, making it the latest megadeal to fall apart because of the virus.

Down news included the Department of Labor’s disclosure that more than 1.5 million people filed for unemployment for the week ending June 5, along with a reported surge in Covid-19 cases in California, Arizona, Texas, South Carolina, and Arkansas.

Meanwhile, the Federal Reserve said near-zero interest rates would be needed through 2022 to help recover the tens of millions of jobs lost in the last three months.

For its potential impact on the housing market, Haus chief economist Ralph McLaughlin sounded a note of caution.

“The course of the virus is what will ultimately dictate the trajectory of the U.S. economy and real estate markets,” he said.

Johns Hopkins University has tracked a rise in coronavirus infections in at least 18 states over the few days and Houston’s mayor said he was considering reimposing a stay-at-home order.

“The good news is that the Fed has basically said they’re going to keep the spigot open for as long as needed to keep financial markets liquid,” said McLaughlin. He added that included ramping up the purchase of mortgage-backed securities.

The Fed has renewed its commitment to purchase $80 billion worth of Treasuries and $40 billion of mortgage-backed securities each month, according to Reuters.

What hit the real estate industry during the pandemic was a cash-flow problem, “so now is not the time to hike rates,” said David Eyzenberg, head of Eyzenberg & Co., a New York-based commercial real estate investment bank. He added, “once the recovery is in full swing, we should raise rates because having no inflation, like Japan, isn’t a good thing.”

Average 30-year fixed mortgage rates set a new record low when they dropped below 3 percent this week. Meanwhile, residential mortgage applications were up 13% last week year-over-year, according to the Mortgage Bankers Association.


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