September 27, 2022
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Real estate stocks are coming under pressure as traders expect the Federal Reserve to push up its policy rate by another 75 basis points, for the third meeting in a row. That would increase mortgage rates, hurting the affordability of homes for more consumers.
Among the S&P 500, the real estate sector has dropped the most, falling 2.6% in Tuesday midafternoon trading. The S&P Composite 1500 Equity Real Estate Investment Trusts Index (SP1500-601010) is down 2.4%.
The prospect of mortgage rates staying above 6%, vs. 2.86% a year ago, is pushing some prospective buyers to the sidelines.
That, though, should increase demand for apartments and other rental properties. However, the S&P Composite 15000 Residential REITs Index (SP1500-60101060) has declined 3.1% in Tuesday trading. By name, AvalonBay (NYSE:AVB) had fallen 3.8%, Mid-America Apartment Communities (NYSE:MAA) -3.2%, and Equity Residential (NYSE:EQR) -3.4%.
Apartment stocks also be pressured by an increase in construction of multifamily units, part of the housing starts and building permit numbers released Tuesday morning. “Multifamily housing starts reached its best monthly performance in 35 years,” said Lawrence Yun, chief economist at the National Association of Realtors. “Apartment demand has been strong, with rents rising at a historically high pace.”
Once those units are built, the increase in supply may give landlords less power in raising rates.
Overall, housing starts rose 12.2% in August from the previous month 1.575M, better than the 1.440M expected. Building permits, though, dropped 10% M/M to 1.517M, fewer than the 1.621M consensus.
iShares U.S. Home Construction ETF (BATS:ITB) slid 2.3% in afternoon trading. By name, Lennar (NYSE:LEN) dipped 2.2%, D.R. Horton (NYSE:DHI) -1.8%, and PulteGroup (NYSE:PHM) -1.9%.
Last week, billionaire real estate investor Barry Sternlicht said he expects a housing crash as the economy brakes hard


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