Fears of a Recession Hits Stock Market

Real estate stocks were hit hard on Monday, August 5th amid the threat of a recession due to fears about the health of the U.S. economy. Both the S&P 500 and Dow Jones Equity All REIT Index lowered 3% — representing the “biggest one-day drop since September” for the S&P. There are growing concerns that the Federal Reserves reluctance to lower interest rates could push the nation into a recession, as the Friday, August 2^nd jobs report released by the Bureau of Labor Statistics (BLS) showed slower than expected hiring numbers. While the rise in unemployment to 4.3% could give the Fed a reason to cut rates, if “the economy seizes before rates come down, the recession could prove a worse blow to property performance.” A pull back on spending by residential tenants and businesses will hurt commercial real estate revenue if demand further declines and further drive down property values; as well as potentially lead to a further pull back from lenders, making financing more expensive. Property value declines and higher borrowing costs over the past year have resulted in most real estate investment trusts (REITS) faring more poorly compared to the broader market. According to a recent report by S&P Global, as of late June, the All REIT Index “logged an annual return of 5.7 percent, compared to the S&P 500’s 24.6 percent;” while industrial, hotel and office real estate investment trusts all posted negative returns in the second quarter.

Source:    https://therealdeal.com/national/2024/08/05/wall-streets-worst-day-since-2022-crushes-reits-too/