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REIT ETFs to Gain as Mortgage Rates Dip to 3.5-Year Low

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Real estate investment trusts (REITs) witnessed a good run on the bourses over the past year. In fact, the S&P 500 Real Estate (Sector) Index has gained 16.5% in a year’s time. The latest slump in mortgage rates should provide a further boost to the sector. It is widely believed that declining mortgage rates helped the housing sector as lower borrowing costs are making new houses more affordable. Per Freddie Mac, hitting the lowest level since July 2016, the 30-year fixed mortgage rates currently stand at 3.45% compared with 3.51% in the previous week. Moreover, the 15-year average declined to 2.97% from 3%.

Fears surrounding the aggravating coronavirus eruption are also inducing low mortgage rates. This is because, mortgage rates are guided by the treasury yields that are sliding due to a rise in demand for safe-havens (read: Play These Bond ETFs to Keep the Coronavirus Fear at Bay).

Other factors than can support the REIT funds are:

Improving U.S. Economy

The release reports demonstrating impressive data mirror a prosperous domestic economy. The ISM Manufacturing PMI in the United States rose to a reading of 50.9 in January, marking the highest level since July from an upwardly revised 47.8 in December. A reading above 50 indicates expansion in the manufacturing sector, accounting for about 11% of the U.S. economy. The latest reading also registers the first-month growth in the manufacturing sector after five straight months of contraction. Moreover, ISM non-manufacturing and U.S. services PMI surpassed expectations. Strong private payroll report from ADP also led to bullish market sentiments (read: U.S. Manufacturing Back to Health: ETF Winners & Losers).

Solid Housing Data

The new U.S. home sales surged to a 13-year high last December. U.S. housing starts spiked 16.9% to a seasonally adjusted annual rate of 1.361 million homes in December 2019, hitting a record high since December 2006. Also, there was a 3.6% rise in the existing homes sales to a seasonally adjusted annual rate of 5.54 million units in December 2019 (the highest since February 2018). Furthermore, existing home sales rose 10% year over year (read: Housing ETFs to Gain on Upbeat Sales Data).

REIT ETFs to Shine

Notably, Freddie Mac’s chief economist Sam Khater commented that “the combination of very low mortgage rates, a strong economy and more positive financial market sentiment all point to home purchase demand continuing to rise over the next few months”. Against this backdrop, investors can take a look at the following ETFs:

Schwab U.S. REIT ETF SCHH — up 8.2% over the past year

The fund tracks the total return, before fees and expenses, of the Dow Jones U.S. Select REIT Index. SCHH is charging 7 bps in fees. The fund amassed $6.15 billion in AUM (read: ETF Strategies to Combat Coronavirus Outbreak).

iShares Core U.S. REIT ETF USRT — up 10.9%

The fund tracks the investment results of the FTSE Nareit Equity REITS Index. It has an AUM of $1.73 billion and charges 8 bps.

JPMorgan BetaBuilders MSCI US REIT ETF BBRE — up 12%

BBRE tracks the U.S. equity REIT market and invests at least 80% of its assets in securities included in the MSCI US REIT Index. BBRE is charging 11 basis points (bps) in fees. The fund accumulated $1.25 billion in AUM (read: Is it the Right Time to Invest in REIT ETFs? Let's Find Out).

Nuveen Short-Term REIT ETF NURE — up 10%

The fund provides exposure to U.S. REITs with short-term lease agreements, which might display less price sensitivity to interest rate changes than the REITs with longer-term lease agreements. NURE tracks the investment results, before fees and expenses, of the Dow Jones U.S. Select Short-Term REIT Index. NURE is charging 35 bps in fees. The fund gathered $58.2 million in AUM (read: Beat Renewed Trade Tensions With These ETFs).

Invesco S&P 500 Equal Weight Real Estate ETF (EWRE - Free Report) — up 11%

EWRE invests at least 90% of its assets in securities included in the S&P 500 Equal Weight Real Estate Index. EWRE is charging 40 bps in fees. The fund collected $30.5 million in AUM.

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