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Real estate stocks dipped this week as the economic data hampered rate cut hopes among stock traders and a lack of positive news made way for slight pessimism.
The S&P 500 Index declined 0.13% this week, logging its second straight weekly loss, as markets reacted to the inflation as well as sales data by dialing back their interest rate cut expectations. The Federal Reserve is expected to hold rates steady at the second monetary policy decision of the year next Wednesday.
"Mortgage rates ticked back up in February—a disappointing development for prospective homebuyers, who just a few months ago got a glimmer of hope as rates finally started to fall," online real estate brokerage Redfin's chief economist, Daryl Fairweather, said.
"With rates still elevated, many are opting to continue renting, which is buoying rental demand, and as a result, rent prices," Fairweather added.
Asking rents in the U.S. saw their biggest annual increase in more than a year in February, Redfin (RDFN) said in a report.
Real estate brokerages/platforms particularly fell on Friday on the National Association of Realtors' settlement news. NAR agreed to pay $418M to resolve a series of claims of collusion within the real estate industry aimed at maintaining artificially high agent commissions. Also, the association is set to revise multiple regulations in a move that is expected to result in a substantial drop in the cost of selling a home.
The Real Estate Select Sector SPDR Fund ETF (NYSEARCA:XLRE), which tracks the S&P 500 real estate stocks, retreated 2.81% during the course of the week to close at $39.04. The FTSE Nareit All Equity REITs index fell 3.58%, while the Dow Jones Equity All REIT Total Return Index decreased 3.02%.
Extra Space Storage (EXR), Equinix (EQIX) and Crown Castle (CCI) were the biggest losers among the S&P 500 real estate stocks. CoStar Group (CSGP) was an outlier, being the only gainer of the week. Trinity Place Holdings (TPHS), Lead Real Estate (LRE) and Safe and Green Development (SGD) were the other notable real estate losers.
Seeking Alpha's Quant Rating system maintained the Hold rating on XLRE, but lowered its recommendation relating to momentum. SA analysts also grade the stock a Hold.
The ETF saw net inflows of $85.48M this week, compared to outflows of $22.9M last week. Inflows especially gained pace after real estate stocks dropped in the wake of the NRA settlement news. Here is a look at the fund flows movement into and out of XLRE in the last 2 weeks, according to the data solutions provider VettaFi.
Earnings season ended for the sector this week. Of the 88 equity REITs that provide full-year FFO guidance, 59 REITs (67%) beat the midpoint of their forecast. Data Center, Retail, Hotel, and Single-Family Residential REITs were among the best performing property sectors this quarter, SA contributor Hoya Capital said in a recent report.
A relative weakness was seen in the interest-rate-sensitive property sectors - net lease and office - along with goods-oriented sectors. Surging interest expense - not property-level fundamentals - was the culprit behind, according to Hoya Capital.
For the week, healthcare REITs were the biggest losers, while Specialized REITs followed from a distance. Here is a look at the subsector performances: