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Economy

(New York)

If you have been investing in REITs over the last few years, one of the key driving mantras has been the idea that one should move away from brick and mortar-oriented retail REITs and toward those that are more ecommerce-focused. In other words, buy REITs focused on warehouses, not those on malls. However, that arithmetic might be changing, as the big boom in warehousing is now facing headwinds because of the trade war. Recently was the first time in years that “the market didn’t lease to its full potential”, said a trade group in the space. The sector is “uniquely exposed to trade activity and manufacturing activity, which are very much impacted by the tariffs”.


FINSUM: To us this seems more likely to prove a short-term headwind than a long-term issue given the driving force behind warehouse growth is not actually tied to any trade policy, but a broader change in consumption patterns.

(New York)

More data has been just released on the US real estate market, and more disappointment. While the market should be rebounding because of the big fall in mortgage rates, the opposite seems to be happening. New home construction fell by the most in five months in July. Housing starts fell 4% despite lower mortgage rates. The fall came despite expectations for growth, and June numbers were also revised downward. An economist at Zillow summarized the situation this way, saying “Scarce land and high labour costs have plagued builders for much of the year, factors that have been exacerbated by unrelenting uncertainty in the global markets … This week’s flare-up, with bond markets flashing recession warnings, does not provide fertile ground for new housing investment”.


FINSUM: The market seems to be perpetually slowing, but it has not reversed outright despite over a year of weak data. Time has proved that real estate seems a little disconnected from the rest of the economy right now; in other words, it does not seem to be an indicator of much.

(New York)

Something discouraging is happening to the US real estate market. Home prices and sales are continuing to be weak despite a huge drop in mortgage rates. Lower mortgage rates should have given a boost to new home sales and construction, but the opposite has occurred. Home price gains and sales have slipped considerably and permits for new construction have fallen 6.6% in 15 months.


FINSUM: The question, as ever, is whether the weakness in housing is presaging an economy-wide recession, or is just an isolated situation. We favor the latter.

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