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The rate-sensitive real estate stocks outperformed major equity averages this week as Federal Reserve Chair Jerome Powell said the central bank is set to start cutting interest rates.
“The time has come for policy to adjust,” Powell said Friday at the Kansas City Fed’s Jackson Hole Economic Symposium, themed “Reassessing the Effectiveness and Transmission of Monetary Policy”.
The remark in the prepared text of his speech indicates that the Federal Open Market Committee will cut its policy rate at its Sept. 17-18 meeting from its current level of 5.25%-5.50%.
The Real Estate Select Sector SPDR Fund ETF closed the week 3.61% higher at 43.37, logging gains in all the five trading sessions.
The Dow Jones Equity All REIT Total Return Index rose 3.58%, while FTSE Nareit All Equity REITs advanced 3.84% from the prior week.
Comparatively, the S&P 500 Index added 1.45% to finish at 5,634.61 points.
Sector News
- Existing home sales rose 1.3% in July, beating consensus but remained sluggish. Meanwhile, new home sales increased 10.6% in July, spurred by lower mortgage rates.
- Mortgage rates remained largely flat this week, but are expected to gently slope downward through 2024, the Freddie Mac Primary Mortgage Survey showed.
- Mortgage applications dipped as the refinancing activities took a breather.
- Home sales are expected to come in lower than previously forecast through the rest of 2024, and then not pick up meaningfully until further out in 2025. The Fannie Mae Home Purchase Sentiment Index continues to report a near-record low share of respondents indicating it’s a “good time to buy” a home.
Sentiments
Ironically, the Real Estate Select Sector SPDR Fund ETF saw $58.94M worth of net outflows, compared to inflows of $135.98M in the prior week, data solutions provider Vettafi said.
Seeking Alpha’s Quant Rating system grades the ETF as Buy, with a score of 4.28 out of 5. Quant assigns XLRE an A for Momentum and Expenses, C- for Dividends, D+ for Risk and A+ for Liquidity.
SA analysts give the fund a Hold rating.
For Wall Street analysts rating, Mizuho Securities USA downgraded Kimco (KIM) to Neutral from Outperform as the shopping center REIT stock reached the firm’s price target and is trading in line with the subsector.
Notable Movers
Public Storage (PSA) and Extra Space Storage (EXR) were the top gainers of the week, with Scotiabank and Barclays raising their respective price targets on the two self storage REITs.
Hotel & Resort REITs and Industrial REITs were the top-performing subsectors. Here is a look at the week’s subsector performance:
