The Jobs Report Looms Large for Real Estate Investors (Part 2 of 6)
Week in review
Last week didn’t have much in the way of market-moving economic data. Existing home sales rose to an annualized pace of 4.88 million while new home sales rose to an annualized pace of 539,000. Note that this is February data, which is notoriously volatile and probably the least valuable month for extrapolating data and trends. Home prices continued to rise, according to the FHFA House Price Index.
On Friday, we got the final revision of fourth-quarter GDP, which came in at 2.2%. This was flat with the second revision and a big decrease from the third-quarter rate of 5%. Gross fixed investment was revised down from the first revision by a lot (7.4% to 3.7%). Government spending was extremely high in the third quarter, but it fell in the fourth quarter. This kind of movement is typical of the government. Its fiscal year ends in September, and there’s a “use it or lose it” aspect of Federal budgeting.
Finally, we saw a spate of merger activity, with Kraft (KRFT) being bought out by Heinz, and a rumored deal in the semiconductor space with Intel (INTC) supposedly in talks to buy Altera (ALTR).
Implications for mortgage REITs
Bond yields ticked up marginally last week, which was bad news for mortgage REITs—particularly agency REITs like Annaly Capital (NLY) and American Capital Agency (AGNC). Non-agency REITs like Two Harbors (TWO) are a little more insulated from interest rate moves because they take credit risk.
Investors interested in trading the mortgage REIT sector via an ETF should look at the iShares Mortgage Real Estate Fund (REM). Investors interested in making directional bets on interest rates should look at the iShares 20-year bond fund (TLT).
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