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Real estate and mortgage-linked stocks came under selling pressure in Wednesday late morning trading, after hotter-than-forecast consumer inflation data spurred markets to price in delayed interest-rate cuts by the Federal Reserve.
Homebuilders were changing hands in the red, with the iShares U.S. Home Construction ETF (BATS:ITB) off 3.5%. By name, D.R. Horton (NYSE:DHI) -4.5%, KB Home -4.2%, PulteGroup (NYSE:PHM) -4.1%, Toll Brothers (NYSE:TOL) -3.8% and Lennar (NYSE:LEN) -3.8%.
Real estate brokerages: Zillow (NASDAQ:ZG) -4.9%, Re/Max (RMAX) -7.8%, Redfin (NASDAQ:RDFN) -6.2%, eXp World (NASDAQ:EXPI) -6.8%, Compass (NYSE:COMP) -4.3%, Opendoor Technologies (NASDAQ:OPEN) -9.5%.
Mortgage lenders: Rocket Companies (NYSE:RKT) -10.3%, Mr. Cooper (NASDAQ:COOP) -0.4%, PennyMac Financial Services (NYSE:PFSI) -3.4%, UWM Holdings (NYSE:UWMC) -4.7%, loanDepot (NYSE:LDI) -5.3%.
Mortgage REITs: Annaly Capital Management (NYSE:NLY) -2.9%, AGNC Investment (NASDAQ:AGNC) -2.6%, Chimera Investment (NYSE:CIM) -4%, Two Harbors Investment (NYSE:TWO) -3.3%, Orchid Island Capital (NYSE:ORC) -2.8%, New York Mortgage Trust (NASDAQ:NYMT) -3.7%.
The March CPI report showed that price pressures remained stubborn, with continued strength in rents, the largest component of the inflation gauge. Investors, in turn, see a greater chance the Fed will keep rates higher for longer.
Real estate as an asset class is highly sensitive to interest rates (both the Fed's policy rate and Treasury yields). Higher rates result in higher borrowing costs for taking out a mortgage, effectively pricing buyers out of the market and resulting in less demand. Taking it a step further, elevated rates generally turn would-be homebuyers into renters, driving up rental prices.