Real estate stocks dodge obstacles, charge forward in August

As the U.S. economy emerges from the pandemic, real estate’s spirit animal might be the iconic bull of Wall Street, leaping over every obstacle in its way.

Real estate stocks climbed ever higher in August despite the end of a national eviction moratorium and uncertainty over how the Delta variant would affect everything from retail spending to a return to offices.

All real estate indexes and exchange-traded funds followed by The Real Deal gained value this month, as did many individual companies, matching or beating the growth in broader markets.

Residential brokerage Compass had its best month since going public in April, its share price gaining 18.6 percent in August, while homebuilder Toll Brothers — facing supply chain disruptions and rising materials costs like all builders — climbed 7.3 percent. Shopping mall owner Simon Property Group closed on Friday up 4.5 percent, and international industrial owner Prologis closed 4.4 percent higher for the month.

The Real Estate Select Sector Index, which matches the stock price performance of publicly traded real estate companies, rose 1.9 percent in August to $47.68 while the Nasdaq Composite index grew 3.5 percent overall.

Pushing the industry forward, the housing market remained red hot as consumers and builders alike experienced a run of price inflation. Partly behind inflated prices is the Federal Reserve, which having propped up corporate debt through bond buying, forecasted this week it would taper those ambitions, if not quite yet.

Home prices have risen in 94 percent of U.S. markets, with the median price of single-family homes up at least 10 percent since June of last year. Asking rents for such homes have risen even further, 13 percent, since last July.

That means more profits for landlords as well as the nation’s massive residential mortgage market. Spending in the housing market accounted for 17.5 percent of gross domestic product in 2020, according to the Congressional Research Service. Real spending on housing has grown since then as national GDP rose at an annual rate of 6.5 percent in the second quarter of this year, the Department of Commerce estimated. The S&P Homebuilders ETF rose 2.7 percent in August to $78.10.

Real estate investment trusts – large landlords that share profits with investors – generated mixed returns this month. The iShares Cohen & Steers REIT ETF rose 1.6 percent despite the Delta variant potentially drawing consumers away from shopping, at least in brick-and-mortar stores, while bellwether companies Apple and Google delayed their employees’ return to the office until January, at least.

Companies that own mainly office buildings, including SL Green, Boston Properties, Paramount Group and Vornado Realty, however, declined this month.

While the price of the S&P Retail ETF was little changed, there was cause for optimism among retailers and their landlords as strong second-quarter earnings demonstrated that as vaccination rates increase, More Americans are returning to pre-Covid shopping habits.

Major market indices fell slightly Tuesday on news of a decline in consumer confidence this month to its lowest level since February, while markets still ended the month at record levels. Employment figures to be released by the Labor Department on Friday will indicate how much the labor market rebounded in August, with a Wall Street Journal survey putting the expected number of hirings at 720,000. That figure, while below gains made in the prior two months, would indicate the economy was moving in the right direction.