The unique perspective of the real estate sector for 2024 – and what is to come
Despite a few tough days for the S&P 500, which is still comfortably in the green this year (up 6%), one sector of the stock market is feeling more pain than the rest.
The perception that interest rates could remain higher for a long time is hurting the real estate sector, even as debate rages over how many times – if any – the Federal Reserve will cut interest rates this year.
The group is by far the worst performer in the S&P 500 for 2024, down more than 10%. Most of those declines have come in the past two weeks, as Treasury yields climbed to their highest levels since November and investors are coming to terms with the fact that the long-awaited cuts are not on the way.
Investors now face the question of whether to buy the decline or, to quote another market cliché, risk trying to catch a falling knife.
One real estate investor said the real-time rent indices she sees are encouraging on the inflation front. This is in contrast to the much-hyped rent barometers that the Fed relies on.
“If you factor in real-time shelter costs, it’s much lower than what’s actually showing,” Uma Moriarity, senior investment strategist at CenterSquare, told Yahoo Finance. “We think inflation is headed in the right direction.”
That’s why she’s still confident in three rate cuts this year – a view, of course, that the market has moved away from. That’s also why she’s still confident in real estate. That’s in addition to the fact that stocks are relatively cheap.
The reasons real estate stocks suffer when rates rise are twofold. First, companies tend to carry a lot of debt, and as rates rise, it becomes harder to service or refinance that debt. Second, with relatively high dividend yields, stocks compete with vehicles like money market funds for investment dollars.
Real estate stocks have traditionally struggled to rise in the face of rising rates. But if Moriarty — and Citigroup — are right, they may not rise as long as the broader market is watching.
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