Rate Cuts Fuel Real Estate Sector Surge
In a week that saw Federal Reserve Chair Jerome Powell hint at interest rate reductions, rate-sensitive real estate stocks emerged as the high-flyers, outpacing major equity benchmarks. The real estate rally comes as Powell alluded to imminent adjustments in policy during the Kansas City Fed’s Jackson Hole Economic Symposium this Friday.
Market Performance
The Real Estate Select Sector SPDR Fund ETF soared 3.61% over the week to close at 43.37, registering gains in all five trading sessions. The Dow Jones Equity All REIT Total Return Index climbed 3.58%, and FTSE Nareit All Equity REITs surged 3.84% compared to the prior week. In contrast, the S&P 500 Index added 1.45% to reach 5,634.61 points.
Sector Highlights
- Existing home sales in July surged by 1.3%, surpassing expectations but suggesting a sluggish trend. Newly-built homes also saw a 10.6% rise in sales, driven by lower mortgage rates.
- The Freddie Mac Primary Mortgage Survey revealed stagnant mortgage rates for the week, with predictions of a gradual decline through 2024.
- Despite flattening mortgage rates, refinance activities experienced a slight dip, hinting at cautious market sentiments.
- Projections indicate a subdued outlook for home sales throughout 2024, with expectations of a meaningful uptick only by 2025. The Fannie Mae Home Purchase Sentiment Index reflects a prevailing sense of hesitancy among buyers, with few indicating it’s an opportune time to purchase a home.
Investor Sentiments
The Real Estate Select Sector SPDR Fund ETF recorded net outflows amounting to $58.94M, starkly contrasting the $135.98M inflows of the previous week, according to data provider Vettafi. Despite this, the ETF received a favorable ‘Buy’ grade with a score of 4.28 out of 5 in Seeking Alpha’s Quant Rating system, reflecting strong Momentum and Expenses, moderate Dividends, and high Liquidity.
The sentiment remains mixed, with SA analysts assigning a ‘Hold’ rating to the fund. On the sell-side, Mizuho Securities USA downgraded Kimco (KIM) to ‘Neutral,’ citing that the stock of this shopping center REIT has reached the firm’s price target, aligning with sector trends.
Top Performers
Among the notable movers of the week, Public Storage (PSA) and Extra Space Storage (EXR) led the pack, with Scotiabank and Barclays setting higher price targets for these self-storage REITs. Notably, Hotel & Resort REITs and Industrial REITs emerged as the top-performing subsectors, showcasing robust market performance.
This week’s market dynamics underscore the resilience of the real estate sector amidst evolving macroeconomic conditions and investor sentiment.
