ETFSector.com Sector Insights | December 1, 2024 | Real Estate Sector
Price Action & Performance
Note: We are changing our sector ETF proxy for Real Estate from XLRE to VNQ. We have decided to use the largest US Sector ETF for each sector as our proxies going forward and VNQ represents the largest US Real Estate ETF available.
Real Estate stocks ended November strong, but not strong enough to mark a 3rd straight month of underperformance vs. the S&P 500. A move above the $100 level for VNQ would be a bullish technical development, while the MACD oscillator is throwing off a buy signal presently with the RSI short of overbought conditions.
At the Industry level, Office REITs and Management & Development stocks are the best performers over the past 3-months. Other industries have retraced gains from the summer and amid investors shift to higher risk appetite.
At the stock level our favorite names are IRM and CBRE. We are also constructive on data centers (EQIX, DLR) and some shopping mall REITS (SPG, KIM, REG). We remain positive on BXP, ESS, WLTW and MAA.
Economic and Policy Drivers
In November, the U.S. real estate sector experienced notable economic and policy developments. The Federal Reserve’s decision to cut interest rates led to a brief decline in mortgage rates, which temporarily boosted buyer interest. However, mortgage rates soon rebounded to nearly 7%, dampening affordability and slowing home sales. Consequently, the housing market remained sluggish, with sales on track for the lowest levels since the mid-1990s.
On the policy front, the Financial Crimes Enforcement Network (FinCEN) introduced regulations aimed at combating corruption in real estate transactions. These measures require detailed reporting of beneficial ownership and all-cash transactions, adding compliance obligations for industry stakeholders.
Additionally, the political landscape, including the outcome of the November presidential election, has created uncertainty among real estate investors, influencing market dynamics and investment decisions. Factors include the direction of interest rates as policy easing has led to market rates moving higher not lower, trade policy and its impact on input costs and foreign policy, particularly towards China which could have large potential impacts on the supply chain.
In Conclusion
The Real Estate Sector starts December as a laggard, but with hopes that cooling inflation pressures will lower interest rates and allow for needed transformations within the sector to continue. We think outperformance will depend on the direction of interest rates and we note those are losing momentum after backing up post-election. We are long XLRE for December with a +0.73% allocation vs. the S&P 500 Index.
Chart | XLRE Technicals
- XLRE 12-month, daily price (200-day m.a. | Relative to S&P 500 |MACD | RSI)
- We’ve seen enough over the intermediate term to get more constructive on the sector
XLRE Relative Performance | XLRE Industry Relative Performance | 3m
- The Sector and Industries have failed to sustain bullish reversal as investors have rotated into higher-beta cyclicals on optimism surrounding interest rate policy and the US Election
Data sourced from FactSet Research Systems Inc.
