Why Real Estate ETFs Could be Tapped Now

·3 min read

The U.S. real estate sector has been under pressure amid the peak of lockdown. However, things are have been changing for the betterment and the losing trend may shift ahead because of the below-mentioned reasons.

Rising Inflation

The current economic backdrop is promising for an inflation comeback. The Consumer Price Index rose for April from a year earlier was the sharpest since September 2008. The Consumer Price Index increased 4.2% from a year earlier, breezing past the estimate of 3.6% increase. The sequential inflation was 0.8%, against the expected 0.2%.In a rising inflation environment, real estate stocks act as a good bet. Both, resale value of the property and rental income, rise with price inflation.

Uptick in Home Prices is a Boon for Renters

The U.S. homebuilding sector is on fire. Thanks to extremely low mortgage rates, home sales are upbeat. But higher demand for home buying as well as lack of labor and land has boosted home prices. This is a great scenario for renters.

Along with some analysts, we too believe that fast-rising home prices are likely to keep prospective homebuyers away from the ownership and direct them toward the rental market. “Homeownership is still dead in this country because the only people that are buying homes right now are people that have equity, great credit and a job,” multi-family housing investor Grant Cardone told Yahoo Finance, quoted on an article.

Still Shaky Job Market = High Demand for Rent from Low-Income Group

The job market is still far from steady. In April, nonfarm employment was down by 8.2 million, or 5.4%, from its pre-pandemic level in February 2020.The coronavirus fears are still in fine fettle. This means demand for real estates for rent purpose is likely to remain strong from middle-income or low-income consumers.

Real Estates Are Lucrative Amid a Low-Yield Environment

If these are not enough, a general low-rate environment is great for real estate stocks and ETFs as these are high-yielding in nature. The benchmark U.S. 10-year treasury yield was 1.61% on May 24. Against such a low-yield backdrop, dividends offered by real estate ETFs are quite sturdy.

Some of the decent real estate ETF plays right now are Real Estate Select Sector SPDR ETF XLRE (yields 3.15% annually), PPTY U.S. Diversified Real Estate ETF PPTY (yields 2.91% annually) and VanEck Vectors Mortgage REIT Income ETF MORT (yields 6.84% annually).

Against this backdrop, below we highlight a few real state ETFs that have stayed steady in recent weeks.

ETFs in Focus

Virtus Real Asset Income ETF (VRAI) – Up 3.7% in the Past four weeks, Yields 4.18% annually

iShares Mortgage Real Estate ETF (REM) – Up 1.6% in the Past four weeks, Yields 6.07% annually

Invesco S&P 500 Equal Weight Real Estate ETF (EWRE) – Up 1.5% in the Past four weeks, Yields 3.31% annually

PPTY – U.S. Diversified Real Estate ETF (PPTY) – Up 1.5% in the Past four weeks, Yields 2.91% annually

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

VANECK-MTG REIT (MORT): ETF Research Reports

SPDR-RE SELS (XLRE): ETF Research Reports

INVS-SP5 EW RE (EWRE): ETF Research Reports

ISHARS-MTG RE (REM): ETF Research Reports

US-DVSFD RE (PPTY): ETF Research Reports

VIRTS-RA INCM (VRAI): ETF Research Reports

To read this article on Zacks.com click here.

Zacks Investment Research

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Our goal is to create a safe and engaging place for users to connect over interests and passions. In order to improve our community experience, we are temporarily suspending article commenting