REIT ETFs To Gain As Mortgage Rates Dip To 3.5-Year Low

Real estate investment trusts (REITs) witnessed a good run on the bourses over the past year. In fact, the S&P 500 Real Estate (Sector) Index has gained 16.5% in a year’s time. The latest slump in mortgage rates should provide a further boost to the sector. It is widely believed that declining mortgage rates helped the housing sector as lower borrowing costs are making new houses more affordable. Per Freddie Mac, hitting the lowest level since July 2016, the 30-year fixed mortgage rates currently stand at 3.45% compared with 3.51% in the previous week. Moreover, the 15-year average declined to 2.97% from 3%.

Fears surrounding the aggravating coronavirus eruption are also inducing low mortgage rates. This is because, mortgage rates are guided by the treasury yields that are sliding due to a rise in demand for safe-havens (read: Play These Bond ETFs to Keep the Coronavirus Fear at Bay).

Other factors than can support the REIT funds are:

Improving U.S. Economy

The release reports demonstrating impressive data mirror a prosperous domestic economy. The ISM Manufacturing PMI in the United States rose to a reading of 50.9 in January, marking the highest level since July from an upwardly revised 47.8 in December. A reading above 50 indicates expansion in the manufacturing sector, accounting for about 11% of the U.S. economy. The latest reading also registers the first-month growth in the manufacturing sector after five straight months of contraction. Moreover, ISM non-manufacturing and U.S. services PMI surpassed expectations. Strong private payroll report from ADP also led to bullish market sentiments (read: U.S. Manufacturing Back to Health: ETF Winners & Losers).

Solid Housing Data

The new U.S. home sales surged to a 13-year high last December. U.S. housing starts spiked 16.9% to a seasonally adjusted annual rate of 1.361 million homes in December 2019, hitting a record high since December 2006. Also, there was a 3.6% rise in the existing homes sales to a seasonally adjusted annual rate of 5.54 million units in December 2019 (the highest since February 2018). Furthermore, existing home sales rose 10% year over year (read: Housing ETFs to Gain on Upbeat Sales Data).

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