3 Real Estate Stocks to Buy on Falling Mortgage Rates

Industry Overview - The real estate sector is experiencing a moderate performance in 2024, with the S&P 500 Real Estate Select Sector SPDR (XLRE) advancing 5.5% year to date as of August 6, following a decline until the end of June [1] - Optimism regarding potential rate cuts by the Federal Reserve and decreasing mortgage rates have contributed to this turnaround [1] Mortgage Rate Trends - The benchmark 30-year average mortgage rate fell to 6.5% late last week, the lowest since May 2023, and further decreased to 6.3% on Monday, the lowest since April 2023 [2] - The National Association of Realtors (NAR) has revised its forecast for the 30-year fixed mortgage rate to an average of 6.9% for the year, up from a previous forecast of 6.7%, with expectations of rates between 6.5% and 6.7% in the fourth quarter [2] - NAR anticipates moderately lower mortgage rates, higher home sales, and price stability in the second half of 2024 [2] Federal Reserve Expectations - Approximately three-quarters of respondents on CME's FedWatch Tool expect a 50 basis points rate cut by the Fed in September, a significant shift from earlier expectations of a 25 basis points cut [3] - The market anticipates at least two rate cuts by the end of the year, which could further lower mortgage rates [3] Investment Opportunities - In light of potential economic conditions, including a higher inventory of homes, the sector may attract first-time buyers, suggesting a favorable environment for investment in real estate stocks [4] - Three real estate or related stocks have been identified with strong potential, all having positive earnings estimate revisions in the past 60 days and carrying Zacks Rank 1 (Strong Buy) or 2 (Buy) [4] Company Highlights - Two Harbors Investment Corp. (TWO) is a real estate investment trust with an expected earnings growth rate of 257.1% for the current year, and its earnings estimate has surged by 118.6% over the past 60 days, holding a Zacks Rank 1 [5] - Tanger Inc. (SKT), primarily investing in shopping centers, has an expected earnings growth rate of 5.1% for the current year, with unchanged earnings estimates over the past 60 days, holding a Zacks Rank 2 [6] - Dynex Capital, Inc. (DX), a mortgage real estate investment trust, has an expected earnings growth rate of 205.3% for the current year, with a 33.3% improvement in earnings estimates over the past 60 days, also holding a Zacks Rank 2 [6]