3 Real Estate Stocks to Buy on Increasing Mortgage Rates

Mortgage rates have increased after declining since the announcement of rate cuts. The average 30-year fixed mortgage rate rose to its highest level since the week ending Aug. 9 at 6.52%, according to the Mortgage Bankers Association survey. This is the third consecutive week that mortgage rates have risen.

Mortgage rates are usually linked to movement in treasury yields. Specifically, the 10-year Treasury is seen as the biggest influence on mortgage rates, and yields for the 10-year have increased in recent weeks. This northward movement of mortgage rates defies conventional wisdom, as bond yields typically decrease as the Fed-determined federal funds rate does. However, lower mortgage rates were prevalent even before the Fed started cutting rates. This is because long-term bond yields are also guided by the anticipation of multiple rounds of cuts to the short-term Fed funds rate, a possible six to eight cuts from September to deep into 2025.

The National Association of Realtors (“NAR”), in the meantime, 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 the second half of 2024 to witness moderately lower mortgage rates, higher home sales and price stability.

Real estate has had a decent year. The S&P 500 Real Estate Select Sector SPDR (XLRE) advanced 13.6% year to date as of Oct. 17. 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.

While elevated mortgage rates in recent weeks seem have reduced affordability, with rates 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 to consider 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.

Sino Land Company Limited SNLAY is an investment holding company that manages properties.

SNLAY has an expected earnings growth rate of 23.1% for the current year. The Zacks Consensus Estimate for its current-year earnings has improved 4.4% over the past 60 days. SNLAY currently holds a Zacks Rank #2.

Two Harbors Investment Corp. TWO engages in the business of mortgage servicing rights (MSRs), agency residential mortgage-backed securities (RMBS) and other financial assets.

TWO has an expected earnings growth rate of 771.4% for the current year. The Zacks Consensus Estimate for its current-year earnings has improved 2.2% over the past 60 days. TWO currently sports a Zacks Rank #1.

Granite Point Mortgage Trust Inc. GPMT is a commercial mortgage real estate investment trust.

GPMT has an expected earnings growth rate of 24.9% for the next year. The Zacks Consensus Estimate for its current-year earnings has improved 6.3% over the past 60 days. GPMT currently carries a Zacks Rank #2.

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Two Harbors Investments Corp (TWO): Free Stock Analysis Report
 
Granite Point Mortgage Trust Inc. (GPMT): Free Stock Analysis Report
 
Sino Land Co. (SNLAY): Free Stock Analysis Report

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