Real Estate Investors Digest the Jobs Report
Week in review
Last week, ended Friday, December 4, 2015, contained the last jobs report before the FOMC (Federal Open Market Committee) meeting next week. The jobs report was generally strong enough to keep the Fed on track to hike rates. Nonfarm payrolls rose 211,000, better than the 200,000 estimate. The unemployment rate was steady at 5%, and average weekly earnings rose 0.2%.
Construction spending rose 1% last month, also stronger than expected. The jobs report showed that construction employment continues to grow. However, the ISM Manufacturing and ISM Non-manufacturing reports were disappointing.
Implications for mortgage REITs
Bond yields rose about five basis points last week on thin volume. Fed Chair Janet Yellen testified in front of Congress last week, and stressed that the Fed will be slow and deliberate in hiking rates. This is good news for mortgage REITs such as Annaly Capital Management (NLY) and American Capital Agency (AGNC). In addition, non-agency REITs like Two Harbors (TWO) are more sensitive to economic strength and weakness as they bear credit risk.
Investors interested in making directional bets on interest rates can look at the iShares 20+ Year Treasury Bond ETF (TLT). Those interested in trading in the mortgage REIT sector through an ETF can look at the iShares Mortgage Real Estate Capped ETF (REM).
Implications for homebuilders
Homebuilders like PulteGroup (PHM) and CalAtlantic Group (CAA) took comfort in the strong construction spending data. Hovnanian (HOV) reported strong order growth as well. Upcoming 2016 could be shaping up to be a good year for homebuilders. You can invest in homebuilders through the SPDR S&P Homebuilders ETF (XHB).
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