Is winter coming? Real estate stocks dragged down by 4th week of market decline

Markets skid, and public real estate companies with them


Public real estate companies followed major markets into their fourth straight week of declines, reflecting increasing concern among investors about the future of the U.S. economy.

Tech stocks, which have weathered the pandemic comparatively well, are down. CoStar has fallen more than 6 percent in September, Redfin more than 11 percent and eXp World Holdings more than 12 percent.

Zillow has bucked the trend with a gain of 7.3 percent this month. The Bloomberg U.S. REIT index fell 3 percent today, bringing its monthly loss to over 4 percent.

The Nasdaq Composite has fallen almost 10 percent since the start of September and the S&P 500 index is down 7 percent this month after its first four-day losing streak since February.

“We’re seeing Covid spikes in Europe, and the U.K. possibly instituting more restrictions,” said Alexi Panagiotakopoulos, co-founder of Fundamental Income, sponsor of the NETLease Corporate Real Estate ETF.

“Rent prices around U.S. college campuses and universities are dropping,” he added. “Even school is an uncertainty in the market right now.”

The declines follow a summer when markets shrugged off damage done to the economy by the pandemic and uncertainty about the course of the virus. Such optimism is waning, at least for now.

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Large travel and tourism companies, already hammered by Covid, have continued to slide. Hilton International is down 5.5 percent in September and Marriott International 6.9 percent.

“We are seeing a significant uptick in special servicing on CMBS loans especially in hospitality, retail and office assets,” said Henri Kessler, a salesperson specializing in retail and hospitality investment at Marcus & Millichap.

“Public REITS in those asset classes are under pressure,” Kessler said, “thus affecting stock price.” On the residential side, he added, markets are now pricing in the loss of forbearance and the expiration of eviction protections expected in the first quarter of 2021.

Not even homebuilding stocks have escaped a gloomy September, despite benefiting from strong demand as people seek more living space and from the Federal Reserve’s commitment to holding interest rates near zero for three years.

LGI Homes stock has dropped 12 percent this month; Lennar and D.R. Horton fell into the negative for the month on Monday.

Ahead of November’s election, policymakers have struggled to unite behind another stimulus package. Even if they do inject more money into the economy, Kessler predicted, “we’ll see continued stock market choppiness in the near term.”

“Economic indicators aren’t turning around as quickly as you’d hope,” said Panagiotakopoulos. “And the economy is already propped up with stimulus.”