By Barbara Kollmeyer
With interest rates on the rise, attention has increasingly focused on the housing market, which has been in the grips of a slowdown since its postpandemic surge.
Fresh signs of trouble come from Compass /zigman2/quotes/210598365/realtime COMP +0.31% , whose shares are tumbling in premarket after the real-estate brokerage and tech provider slashed its annual revenue guidance and revealed cost-cutting plans, citing a slowing market.
Here’s a chart showing the rough ride for shareholders since Compass’s spring 2021 debut from blogger Wolf Street , who warns the end is nigh for the company based on how fast it has been burning cash:
And a new report from Redfin /zigman2/quotes/203726414/composite RDFN -3.50% revealed 63,000 home-purchase agreements fell through in July — 16.1% of the homes that went under contract in the month — marking the highest percentage on record, apart from March and April of 2020.
What’s a wary real-estate investors to do? Our call of the day from Nuveen’s chief investment officer Saira Malik anticipates “neither a bubble nor bottom” for the market, but says defense is the smartest play right now when to comes to this market.
“Deteriorating home builder and consumer sentiment, higher mortgage rates, historically low affordability, declines in housing starts and building permits, and record-low inventories of existing homes for sale, among other factors,” will have implications for the housing sector and broader economy, Malik wrote in a commentary Monday.
“But in our view they’re not evidence of a housing bubble that’s due to burst” with demand still healthy, she said.
Still, plenty of pain remains for renters as prices continue to soar, and with higher home prices and rental costs, Americans will curb spending on goods and services, eventually hitting corporate earnings and keeping markets volatile, said Malik.
Real-estate investors need to stay “well-positioned, especially if their sector and regional exposures are aligned with prevailing demographic and supply/ demand trends. Builders are still playing catch-up from the global financial crisis, with housing starts still above trend. This reinforces longer-term price stability in the sector and supports our constructive outlook,” she added.
Also, she advises staying defensive through dividend growth stocks that are often higher quality and derive more of total return from dividends instead of price appreciation.
On the data front, U.S. housing starts fell in July to lowest level since early 2021 , following another drop in builder confidence on Monday. An update on existing-home sales is due later in the week.
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Stocks /zigman2/quotes/210598065/realtime DJIA +0.41% /zigman2/quotes/210599714/realtime SPX +0.56% /zigman2/quotes/210598365/realtime COMP +0.31% are flat to lower as trading kicks off, with bond yields /zigman2/quotes/211347045/realtime BX:TMUBMUSD02Y +0.19% /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y +0.11% inching up and oil prices /zigman2/quotes/211629951/delayed CL.1 +0.49% rebounding slightly, following the weakest day in over a month that was driven by sluggish China data. Bitcoin /zigman2/quotes/31322028/realtime BTCUSD +0.69% is trading just under $24,000.
Following a profit warning last month , retailing giant Walmart /zigman2/quotes/207374728/composite WMT +0.82% has beat earnings expectations , and shares are up. Home Depot /zigman2/quotes/208081807/composite HD -0.31% also recorded a profit beat with record sales , but the stock is down.
Merck /zigman2/quotes/209956077/composite MRK +0.55% and Orna Therapeutics will collaborate in a deal to discover and develop programs including vaccines, allowing the latter up to $3.5 billion in milestone payments.