Real estate has had a decent year. The S&P 500 Real Estate Select Sector SPDR (XLRE) advanced 11.3% year to date as of Oct. 4. The sector declined till the end of June. However, as talks started surfacing about the central bank introducing rate cuts in September, the sector has witnessed a turnaround of sorts. This optimism is notably visible if one considers the mortgage rates.

Mortgage rates have slightly increased after declining since the announcement of rate cuts. The 30-year fixed-rate mortgage was at 6.23% on Oct. 6. 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 rose to 41 in September from 39 in August.

To give a perspective, sales of new single-family houses in August 2024 were at a seasonally adjusted annual rate of 716,000, according to estimates released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 4.7% below the revised July rate of 751,000 but is 9.8% above the August 2023 estimate of 652,000.

With the first rate cut announced and more expected in the calendar year, 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). You can see the complete list of today’s Zacks #1 Rank stocks here.

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.

CBRE Group, Inc. CBRE is a commercial real estate services and investment company.

CBRE has an expected earnings growth rate of 23.7% for the current year. The Zacks Consensus Estimate for its current-year earnings has improved 0.9% over the past 60 days. CBRE currently holds a Zacks Rank #2.

NexPoint Real Estate Finance, Inc. NREF is a commercial mortgage real estate investment trust.

NREF has an expected earnings growth rate of 72.3% for the next year. The Zacks Consensus Estimate for its current-year earnings has improved 10% over the past 60 days. NREF currently sports a Zacks Rank #1.

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