Analysis suggests that there seems to be a turning point in the outlook for US real estate stocks, and given the decline in inflation and the prospect of interest rate cuts, especially when fundamental growth remains stable, real estate investment trusts may rebound by more than 20% at a lower point.
Tech stocks plummeted in overnight US market, Nasdaq lost 2%, while the worst-performing real estate sector this year achieved the largest increase so far, thanks to the expectation of interest rate cut pushing the industry to rebound.
On Thursday, the US real estate sector rose 2.7%, marking the biggest single-day gain since 2024 and reaching the highest level since March. Real estate was the worst-performing sector this year, but it was the best-performing sector on the S&P 500 on that day, with trading volume 30% higher than the 30-day average.
Among them, homebuilders' stocks rose 7.3% on the day, marking the largest increase since 2022 and have accumulated a 7.1% increase so far this year. Real estate investment trusts (REITs) also rebounded, rising as much as 3%. In the past two years of high-interest-rate period, REITs have suffered serious setbacks.
Rich Hill, director of real estate strategy and research at Cohen & Steers said,
The outlook for the sector seems to have turned around. Considering the latest inflation data and interest rate prospects, we believe this provides a convincing backdrop for listed REITs, particularly in the case of steady fundamental growth. If inflation continues to cool and interest rates continue to decline, the rebound that began in October 2023 could continue, pushing the lower-return section to rise by more than 20%.
The surge is supported by the expectation of interest rate cut, as the US June CPI 'surprised' the market and the core CPI hit a new three-year low, and the stubborn housing inflation cooled rapidly. As a result, the market has increased its bet on the Fed cutting rates in September.
Preston Caldwell, chief US economist at Morningstar, pointed out in a client report on Thursday:
Housing is the last problem to solve in winning the battle against high inflation. Leading indicators have strongly suggested that the decline in housing inflation is underway.
However, the rebound in real estate stocks is bad news for short sellers. They have been heavily shorting real estate stocks this year because it is the worst-performing sector on the S&P 500. According to data from S3 Partners, the short interest in the SPDR Homebuilders ETF has hovered around 49% of the outstanding shares this week, the highest level since February.
Editor/Somer
