Inflation is still elevated and price pressures remain a challenge for the economy. However, construction activity is making a steady rebound, led by investments in private residential projects.

The homebuilding sector appears to be once again driving spending on construction projects, much like it did before the Federal Reserve started hiking interest rates early last year to bring inflation down.

Given this scenario, funds like T. Rowe Price Global Real Estate Fund (TRGRX Quick QuoteTRGRX - Free Report) , GuideStone Funds Global Real Estate Securities Fund Investor Class (GREZX Quick QuoteGREZX - Free Report) and JHancock Real Estate Securities Fund Class 1 (JIREX Quick QuoteJIREX - Free Report) are likely to benefit in the near term.

Construction Activity Gathers Pace

Spending on construction projects increased 0.4% in September month over month after jumping 1% in August. Year over year, construction spending jumped 8.7% in September.

September’s jump was primarily driven by spending on private construction projects, which rose 0.4% after climbing 1% in August. Outlays on private residential projects increased 0.1%.

Spending on public construction projects also edged up 0.4% in September after rising 0.9% in August. Spending on residential construction projects increased 0.6%. Also, investments in single-family homes increased 1.3%.

The homebuilding industry took a major hit as mortgage rates started to shoot up after the Federal Reserve started hiking interest rates last year. The homebuilding industry was the mainstay of construction spending during the peak of the pandemic but has since sharply declined.

The Fed has increased interest rates by 525 basis points since March 2022, making it extremely challenging for both buyers and homebuilders. Higher raw material and labor costs have inflated home prices, while the 30-year fixed mortgage rate, which is almost 8% now, has made it difficult for buyers.

However, demand continues to be high amid a shortage of previously owned homes, which is boosting spending on private residential construction projects.

Also, market participants believe that the Federal Reserve may be done with its monetary tightening campaign and may not go for another interest rate hike as fresh jobs data hinted at a cooling labor market.

Lower mortgage rates could increase the feasibility of owning a home, thereby boosting demand in the real estate industry.

3 Best Choices

As a result, we've chosen three funds from the real estate sector that are worth buying. These funds have given impressive 3-year and 5-year annualized returns, boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), offer a minimum initial investment within $5,000 and carry a low expense ratio.

The question here is why should investors consider mutual funds? Reduced transaction costs and diversification of portfolios without the several commission charges that are associated with stock purchases are the primary reasons why one should be parking their money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

T. Rowe Price Global Real Estate Fund seeks appreciation of capital and current income over the long term. TRGRX primarily invests its assets (including any borrowings for investment purposes) in equity securities of real estate businesses around the world, including those in the United States. T. Rowe Price Global Real Estate Fund is a non-diversified fund.

T. Rowe Price Global Real Estate Fund has a 5-year and 10-year annualized return of 1.2% and 0.3%, respectively. The annual expense ratio of 0.74% is lower than the category average of 1.21%. TRGRX has a Zacks Mutual Fund Rank #1.

To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

GuideStone Funds Global Real Estate Securities Fund Investor Class seeks appreciation of capital and current income over the long term. GREZX primarily invests its assets (including any borrowings for investment purposes) in equity securities of real estate investment trusts and other real estate-related companies.

GuideStone Funds Global Real Estate Securities Fund Investor Class has a 5-year and 10-year annualized return of 1.4% and 0.9%, respectively. The annual expense ratio of 0.84% is lower than the category average of 1.21%. GREZX has a Zacks Mutual Fund Rank #2.

To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

JHancock Real Estate Securities Fund Class 1 seeks appreciation of capital and current income over the long term. JIREX invests primarily in the equity securities of companies engaged in operations related to the real estate sector, which includes REITs. JHancock Real Estate Securities Fund Class 1 invests in securities like common stocks, preferred stocks and convertible securities.

JHancock Real Estate Securities Fund Class 1 has a 3-year and 5-year annualized return of 4.2% and 3.6%, respectively. The annual expense ratio of 0.78% is lower than the category average of 1.08%. JIREX has a Zacks Mutual Fund Rank #2. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

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