Real estate has been having a decent 2024. The S&P 500 Real Estate Select Sector SPDR XLRE has advanced 11.1% year to date as of Sept. 4. The sector declined till the end of June. However, optimism about the Fed introducing rate cuts in the economy and falling mortgage rates seem to have triggered a turnaround.

Buoyed by signals from the Fed, the benchmark 30-year average mortgage rate fell to 6.5% late last week, its lowest level since May 2023. The 30-year fixed-rate mortgage fell further on Aug. 30 to 6.37%. The National Association of Realtors (“NAR”) expects the 30-year fixed mortgage rate to average 6.9% in its recent quarterly forecast published in June. This is an upward revision from its previous forecast of 6.7%. NAR has also revised its forecast upward for the fourth quarter to 6.5-6.7%. It expects that the second half of 2024 will witness moderately lower mortgage rates, higher home sales and price stability.

Elevated mortgage rates have reduced affordability and hence, dampened home sales. It has also put pressure on existing homeowners with adjustable-rate mortgages who have seen their monthly payments go through the roof. Overall confidence in the housing market remains fairly subdued, according to the NAHB/Wells Fargo Housing Market Index (HMI). The index changed only slightly in July, falling to 42 from 43 in June.

However, with rate cuts almost certainly starting from September, coupled with the fact that mortgage rates are coming down, there might be better times ahead for home buyers. Even in case of an unlikely recession, a higher inventory of homes would bring prices further down, luring first-time buyers. One must, thus, start considering parking part of their investments in promising stocks in the sector.

Our Picks

We have narrowed our search to three real estate or related stocks that have good potential. These stocks have seen positive earnings estimate revisions in the past 60 days. Our picks carry either a Zacks Rank #1 (Strong Buy) or 2 (Buy).

Two Harbors Investment Corp. TWO is a real estate investment trust that invests in mortgage servicing rights, residential mortgage-backed securities and other financial assets.

TWO has an expected earnings growth rate of 757.1% for the current year. The Zacks Consensus Estimate for its current-year earnings has surged 178% over the past 60 days. TWO currently sports a Zacks Rank #1.

Tanger Inc. SKT is a real estate investment trust primarily investing in shopping centers.

SKT has an expected earnings growth rate of 6.6% for the current year. The Zacks Consensus Estimate for its current-year earnings has improved 1.5% over the past 60 days. SKT currently holds a Zacks Rank #2.

Dynex Capital, Inc. DX is a mortgage real estate investment trust.

DX has an expected earnings growth rate of 205.3% for the current year. The Zacks Consensus Estimate for its current-year earnings has improved 33.3% over the past 60 days. DX currently holds a Zacks Rank #2.

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