After 10 months of a pandemic, we are beginning to get some good news. Pfizer and Moderna have publicized some positive vaccine test results, offering a potential glance of returning to some kind of new normal. So what does that mean for us real estate watchers? So much.

Cities

With potential vaccines on the horizon, real estate in big cities could see a turnaround. – CNN

Anna Bahney of CNN Business reports on the potential relief a vaccine will have for real estate assets in major urban centers. Once a vaccine is in mass distribution, schools will begin to reliably open once again and larger companies will begin to re-open offices. This will bring people closer to the cities once again.

That said, Bahney reports that working from home is here to stay, so the suburbs will maintain an edge over cities for the foreseeable future. New normal indeed.

Interest Rates

The improved outlook will likely lead to higher yields on Treasury notes, which would lift mortgage rates above their record low levels – MarketWatch

Jacob Passy of MarketWatch reports on interest rates, commenting that with record rates, a vaccine will kick-start spending and improve the economic outlook. This will push interest rates higher as the economic picture brightens. According to Passy, “the news regarding Pfizer’s vaccine candidate caused the average rate for the 30-year fixed-rate mortgage to rise six basis points from a record low set the week prior.”

Zillow reported on the short-term reality, which is a bit more sobering: “Treasury yields, which generally drive mortgage rate movements, initially ticked up following news of another coronavirus vaccine contender, but the upward movement was only a fraction of the surge that followed a similar announcement from the week before. The uptick was also quickly erased by more sobering statistics regarding the spread of COVID-19, questions about distribution challenges for an approved vaccine, as well as a disappointing reading on U.S. retail sales.”

David Harrison of the Wall Street Journal (subscription required)reports on pent-up consumer demand, which could place upward pressure on inflation in the coming year. “Some economists are starting to embrace the idea that a prospective Covid-19 vaccine could allow people to once again spend money on travel, restaurants and other services—and drive up prices in the U.S.”

Source: WSJ

The thinking foes that increased inflation will force the Fed to continue to keep interest rates low for the foreseeable future.

Real Estate Stocks

The Wall Street Journal (subscription required) reported this week that after real estate stocks trailed behind the overall market, they are showing signs of new life amidst potential vaccine distribution. With the thought of shoppers, city-dwellers, and office workers getting back to normal, “share prices of some of the country’s biggest property owners were up more than 20% around midday Monday, compared to a roughly 3% increase in the Dow Jones Industrial Average.”

Source: WSJ

Keep in mind that many real estate companies have leverage on their assets, meaning any indication of a small rise in appreciation will create these larger swings upward, but the contrary is also true.

Not all is rosy for housing stocks. Diana Olick of CNBC explains that the biggest builders, such as DR Horton, Lennar, Pulte, and Toll Brothers, were actually down this week. According to Olick, “part of that also has to do with mortgage rates, which set yet another record low last week but appeared to be turning around Monday with a sell-off in the bond market.” This creates concerns in the markets about liquidity and market functioning.

There is an obvious boost from vaccine news to office and retail stocks and REITs, with Quay Global Investorsreporting that Manhattan office REITs jumped around 40%, and many mall REITs jumped 30%.

Alternative Assets

According to Maurie Brockman of Motley Fool, a massive vaccine distribution chain could spur increased interest in real estate assets that focus on cold storage. “Moderna’s news could impact real estate investors in a number of ways. For one thing, despite less stringent storage requirements than Pfizer’s cocktail, Moderna’s vaccine will still result in an uptick in cold storage demand.”