Hoya Capital Housing ETF

HOMZ

Market cap $35.3M

Hoya Capital's David Auerbach talks solid REIT fundamentals despite elevated interest rates and macro volatility. Dividends rising and M&A activity intensifying, especially among small and mid-cap names.

Surging oil prices and hotter inflation reports reignited rate-hike concerns, sending Treasury yields to one-year highs as the Iran conflict remained stalemated despite the highly anticipated Trump-Xi summit.

U.S. equity markets advanced for a fifth straight week - their longest winning streak since 2024 - as strong earnings, resilient data, and hopes for lasting Iran peace fueled optimism. Investors looked through another oil-price surge and inflationary pressure, focusing instead on corporate resilience and economic strength despite a complex macro backdrop shaped by geopolitical and policy uncertainty. The Fed held rates steady in an unusually fractured 8-4 vote, while Powell's plan to remain on the Board broke precedent and raised politically charged succession questions.

REITs have underperformed since 2022 rate hikes, but Hoya Capital's David Auerbach says fundamentals are strong, especially among small and mid-cap names offering attractive yields. Interest rate sensitivity in REITs is often overstated.

Three years of persistent rate-driven pressure on the residential and commercial real estate market appears to finally be abating - and not a moment too soon. REITs were hit by a "triple whammy" of rate-related headwinds: higher borrowing costs directly squeezed profitability, eroded the relative appeal of REIT dividends, and made it near-impossible to grow accretively. Since the Fed's initial rate hike in March 2022, REITs have lagged the S&P 500 by a whopping 55 percentage points, nearly 3x the magnitude of underperformance seen in the GFC.

U.S. equity markets notched another series of record highs this week, surging into the weekend after surprisingly dovish commentary from Federal Reserve Chair Powell, who hinted at imminent rate cuts. Powell used his final Jackson Hole speech as Fed Chair to deliver a clear policy pivot, an unexpected reversal after months of insistence that tariff-related inflation warranted a hawkish framework. Markets were equally relieved by the policy-focused nature of Powell's speech amid speculation that the address may be used instead as a potential defiant sermon on central bank independence.

U.S. equity markets fell sharply this week, while benchmark interest rates retreated to three-month lows, after revised employment data showed that job growth was far weaker than initially reported. The BLS payrolls report showed softer-than-expected hiring in July and the steepest two-month downward revisions to jobs growth since 2020, raising concern that the Fed may be "behind the curve." The downward revisions came days after Fed Chair Powell used it as the primary evidence for "solid" labor markets, which justified the FOMC's decision to keep rates in "restrictive" territory.

Builder confidence just hit an 18-month low, raising red flags for ITB, XHB, PKB and HOMZ amid housing market strain.

Hoya Capital Housing ETF offers exposure to the housing market with a portfolio of 100 stocks focused on real estate and consumer discretionary. HOMZ is well-diversified, has value characteristics, and beats benchmarks in residential real estate, consumer discretionary, and mid-caps. HOMZ is an excellent instrument to gain exposure in the housing market, but has drawbacks: low assets and liquidity, and uncertain underlying market trends.

Despite recent price declines, REITs' future value has increased due to higher rental rates, increased property values, and reduced competing supply. Higher market demanded returns have steepened the slope, causing REIT prices to drop despite improved fundamentals and future value. The price drop is driven by higher expected returns, not impaired future value, making current REIT valuations a buying opportunity.