According to the latest inflation report in the United States being lower than expected, the market is betting that the Fed may start cutting interest rates in September, which injects vitality into the previously weak real estate sector, leading to a significant increase. On Thursday, the stock prices of real estate companies saw a significant increase, with a rise of 2.7%, the best daily performance since 2024, and climbed to the highest point since March. Investors rushed into residential builders, digital, and commercial real estate stocks, making real estate the best-performing sector in the S&P 500 index, with trading volume about 30% higher than the 30-day average.

The housing cost part of the Consumer Price Index is particularly noteworthy, with a rise of only 0.2%, the lowest monthly increase in three years. The decline in this data has had a positive impact on the stock prices of residential builders, which have risen 7.1% since the beginning of this year, with a surge of 7.3% on the same day, marking the largest increase since 2022. D.R. Horton (DHI.US), a company that will announce its performance next Thursday, also saw a 7.3% increase in its stock price.

Preston Caldwell, chief economist at Morningstar, said in a report to clients: 'The housing market is a key battleground to fight against high inflation. Leading data has strongly indicated that housing inflation is falling.'

The rise of real estate stocks is bad news for investors who have sold a lot of these stocks short, as real estate stocks are one of the worst-performing stocks in the S&P 500 index this year. According to data from S3 Partners, short positions in the SPDR Homebuilders ETF accounted for a record high of 49% of the outstanding shares at the beginning of this week, the highest level since February.

It is worth mentioning that real estate investment trusts (REITs) also saw a 3% increase. These funds have been hit hard during the two-year period of rising borrowing costs. Richie Hill, Senior Vice President and Director of Real Estate Strategy and Research at Cohen & Steers Capital Management, said that the prospects for real estate investment trusts seem to be turning around. He cited the latest inflation data and interest rate outlook and said: 'If inflation cools down and interest rates continue to decline, then the rebound since October 2023 is likely to continue, bringing more than 20% return to listed real estate investment trusts.'

After announcing its Q2 results, industrial real estate investment trust company Prologis Inc. (PLD.US) saw its stock price rise by 3.3%, reaching its highest level since April. At the same time, US Treasury yields fell sharply, with the 10-year bond yield dropping to 4.2%, while the more policy-sensitive two-year bond yield fell to 4.5%.

Overall, the lower-than-expected inflation report has brought positive signals to the market, and investors have re-evaluated the prospects of the real estate sector, pushing related stocks to perform strongly. With the potential cooling of inflation and the potential decline in interest rates, the real estate industry may see more investment opportunities.