ETFs
ETFs will play the game as mortgage rates are expected to fall – May 17, 2024
The 30-year mortgage rate is doing better than last November. With expectations growing for interest rate cuts towards the end of the year, 2024 looks set to bring relief to the real estate market. Although rates have improved, it is crucial to recognize that they remain relatively high.
Recent inflation data has inflamed market expectations for an interest rate cut in 2024, with a 50.5% chance the Fed will cut rates to 5-5.25% in September, according to the CME FedWatch tool. According to a Reuters poll, the majority of economists expect the Fed to cut its key rate twice this year, starting in September.
Predicting the future of the mortgage rate
A decline in the federal funds rate, which generally has an indirect impact on the mortgage rate, may prove beneficial to borrowers. The national average for a 30-year fixed mortgage rate, which was 7.22% the first week of May, fell to 7.02% on May 16. according to Freddie Mac.
According to Fannie Mae, the 30-year fixed rate will settle at 6.4% by the end of 2024, indicating a downward trend in mortgage rates, as quoted on Norada Real Estate Investments.
The Mortgage Bankers Association gave a more optimistic estimate for the mortgage rate, forecasting that it will end the current year at 6.1% and fall further to 5.5% in 2025.
Lawrence Yun, chief economist of the National Association of Realtors (NAR), as quoted on Bankrateprojects that current market conditions will stabilize by the end of 2024, with the 30-year fixed mortgage rate settling at approximately 6% by the end of the year.
Will housing inventory support lower projections?
Mortgage rates are also affected by the interaction of housing supply and demand. A surplus of housing inventory could lead to rate cuts to spur purchases, while a deficit could push rates up due to increased competition for available properties.
According to the bank rate, the supply of housing remains particularly scarce. In March, the total number of existing homes available for sale was 1.11 million units, marking an increase from the previous month and year-over-year, resulting in a supply of just 3.2 months, significantly less than the typical 5 to 6 months required for a sale. market equilibrium.
However, according to Lawrence Yun, a slight increase in housing stock could be expected for 2024, which is a positive indication of the reduction in mortgage rates.
ETFs to explore
In April, core CPI rose 3.6% year-on-year, in line with expectations, representing a slowdown from the 3.8% rise recorded in March. Improving mortgage rate projections and moderating inflation levels paint a rosy picture of the near-term outlook for the housing market.
The renewed confidence in real estate since last November, coupled with growing consumer confidence in falling mortgage rates, makes investing in real estate ETFs attractive. However, market uncertainty persists, particularly regarding economic data.
iShares US Home Construction ETF (ITB – Free report)
The iShares US Home Construction ETF seeks to track the performance of the Dow Jones US Select Home Builders Index, with a basket of 44 stocks. The fund has amassed an asset base of $2.79 billion and charges an annual fee of 0.40%.
The iShares US Home Construction ETF has gained 4.02% over the past three months and 37.78% over the past year.
SPDR S&P Home Builders ETF (XHB – Free report)
The SPDR S&P Homebuilders ETF seeks to track the performance of the S&P Homebuilders Select Industry Index, with a basket of 34 stocks. The fund has amassed an asset base of $1.93 billion and charges an annual fee of 0.35%.
The SPDR S&P Homebuilders ETF has gained 9.59% over the past three months and 45.94% over the past year.
Invesco Dynamic Building & Construction ETF (PKB – Free report)
The Invesco Dynamic Building & Construction ETF seeks to track the performance of the Dynamic Building & Construction Intellidex Index, with a basket of 32 securities. The fund has amassed an asset base of $304.3 million and charges an annual fee of 0.62%.
The Invesco Dynamic Building & Construction ETF has gained 11.17% over the past three months and 45.81% over the past year.
Hoya Capital Housing ETF (HOMZ – Free report)
The Hoya Capital Housing ETF seeks to track the performance of the Hoya Capital Housing 100 Index, with a basket of 100 securities. The fund has amassed an asset base of $43.2 million and charges an annual fee of 0.30%.
The Hoya Capital Housing ETF has gained 3.75% over the past three months and 20.86% over the past year.
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