Big real estate stocks kick off H2 with loss as state of the sector weighs on sentiment

Large real estate stocks started the second half of 2024 with a marginal weekly loss despite optimism surrounding interest rate cuts, as the state of the sector weighed on sentiment.

S&P 500 Index Advanced 1.95% From last week, with Labor market data supports the case that the Federal Reserve may cut interest rates. The probability of a 25 basis point rate cut in September is now 72.0%, compared with 72.0% in 2011. 47.0% at the beginning of JuneCME FedWatch Tool show up.

REITs benefited from the decline in investor pessimism. The FTSE Nareit All Equity REITs index, which includes all tax-eligible REITs with more than 50% of total assets in qualifying real estate assets, posted gains. 0.06% On a weekly basis.

However, the SPDR Real Estate Select Sector Index and the Dow Jones Equity All REIT Total Return Index fell by 0.29% And 0.23%respectively.

The commercial real estate sector continues to deteriorate, with high default rates and falling property values. Things are likely to get much worse before they get better, Brett Jensen, an analyst at Seeking Alpha, said in a recent research report.

The commercial real estate market continues to face challenges due to high interest rates and oversupply, while the housing market is suffering from undersupply.

Citi downgraded homebuilders Lennar (LEN) and DR Horton (DHI) from buy to neutral due to weak housing activity this summer.

Home furnishings retailer RH acknowledged that “the housing market is the most challenging in three decades” and warned that “the ever-changing outlook for monetary policy will continue to weigh on the housing market through the second half of 2024 and possibly into 2025.”

Mortgage applications fell this week as rates rose again.

The first presidential debate of the 2024 election cycle between President Joe Biden and former President Donald Trump featured Biden promising to lower home prices and increase inventory. But housing came up only twice in the debate, meaning housing likely won’t be a focal point, according to Realtor.com. He said in an articleQuoted by economist Ralph McLaughlin.

“There are still far too many families experiencing housing insecurity and financial distress in this country and there is far too little national discussion about this,” McLaughlin said.

XLRE saw net outflows of $161.31 million This week, compared to inflows of $213.57 million Last week, data from VettaFi, an information solutions company, showed that show up.

Quantitative ratings firm Seeking Alpha has changed its recommendation on the fund from hold to sell, while South African analysts have rated the fund a buy. Meanwhile, Citi Research says the S&P 500 has further upside potential, highlighting real estate as an overvalued sector.

SBA Communications (SBAC), Host Hotels & Resorts (HST), Weyerhaeuser (WY), Simon Property Group (SPG) and VICI Properties (VICI) were the biggest real estate sector decliners in the S&P 500 for the week. Alset (AEI), Logistic Properties of the Americas (LPA) and La Rosa Holdings (LRHC) were among the notable sector decliners.

Here’s a look at the performance of the sub-sectors during the week: