The real estate industry has had a strong year. The S&P 500 Real Estate Select Sector SPDR (XLRE) has risen 11.3% year-to-date as of Oct. 4. The sector fell through the end of June. However, the sector witnessed a turnaround of sorts as talks began to surface for the central bank to introduce interest rate cuts in September. This optimism is especially evident when you factor in mortgage rates.
Mortgage rates rose slightly after falling since the rate cut was announced. As of Oct. 6, the interest rate on a 30-year fixed-rate mortgage was 6.23%. In its most recent quarterly forecast released in June, the National Association of Realtors (“NAR”) expects 30-year fixed-rate mortgage rates to average 6.9%. This has been revised upward from the previous forecast of 6.7%. NAR also revised its fourth-quarter outlook upward to 6.5% to 6.7%. In the second half of 2024, we expect mortgage rates to decline moderately, home sales to increase, and prices to stabilize.
Rising mortgage rates are reducing affordability and slowing home sales. It’s also putting pressure on existing homeowners with adjustable-rate mortgages whose monthly payments are going through the roof. Overall confidence in the housing market remains fairly subdued, according to the NAHB/Wells Fargo Housing Market Index (HMI). The index rose from 39 in August to 41 in September.
For perspective, new single-family home sales in August 2024 were at a seasonally adjusted annual rate of 716,000 units, according to estimates released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 4.7% lower than the revised July figure of 751,000, but 9.8% higher than the August 2023 forecast of 652,000.
With the first rate cut announced and further rate cuts expected over the course of the calendar year, plus the fact that mortgage rates are falling, it could be a good time for homebuyers. Even if a recession is unlikely, an increase in housing inventory will further drive down prices and attract first-time buyers. Therefore, you should start thinking about keeping some of your investments in promising stocks in that sector.
our picks
We have narrowed it down to three real estate or related stocks with high prospects. These stocks have seen positive earnings estimate revisions within the past 60 days. Our picks carry either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Tanger Inc. (SKT Quick QuoteSKT – Free Report) is a real estate investment trust that invests primarily in shopping centers.
SKT’s profit growth rate for the current fiscal year is expected to be 6.6%. The Zacks Consensus Estimate for current-year earnings has improved 1.5% over the past 60 days. SKT currently holds a Zacks Rank #2.
CBRE Group, Inc. (CBRE Quick QuoteCBRE – Free Report) is a commercial real estate services and investment company.
CBRE’s earnings growth rate for the current fiscal year is expected to be 23.7%. The Zacks Consensus Estimate for current-year earnings has improved 0.9% over the past 60 days. CBRE currently holds a Zacks Rank #2.
NexPoint Real Estate Finance, Inc. (NREF Quick QuoteNREF – Free Report) is a commercial mortgage real estate investment trust.
NREF’s earnings growth rate next year is expected to be 72.3%. The Zacks Consensus Estimate for current-year earnings has improved 10% over the past 60 days. NREF currently sports a Zacks Rank #1.
