Real Estate Stocks Decline, Ending Six-Day Winning Streak As Mortgage Rates Surge To 23-Year Highs

Real estate stocks, tracked by the Real Estate Select Sector SPDR Fund XLRE, experienced losses exceeding 1% on Thursday, reversing earlier gains and breaking a six-day winning streak.

This shift was prompted by growing risk aversion in global markets, as investors adopted a more cautious approach following an unexpectedly higher inflation rate in September.

Additionally, news within the real estate sector likely dampened investor sentiment.

Mortgage rate data revealed worrisome increases, with the average rate on a 30-year fixed mortgage reaching 7.57% for the week ending Oct. 12, 2023 — marking the highest level in 23 years, up from the previous week’s average of 7.49%. The average rate on a 15-year fixed mortgage also rose to 6.89%, compared to 6.78% the previous week, as reported by Freddie Mac.

Chart: Mortgage Rates Continue To Rise For Fifth Straight Week

Sam Khater, chief economist at Freddie Mac, commented, “For the fifth consecutive week, mortgage rates rose as ongoing market and geopolitical uncertainty continues to increase. The good news is that the economy and incomes continue to grow at a solid pace, but the housing market remains burdened by significant affordability constraints, leading to a three-decade low in purchase demand.”

Among real estate stocks, office REITs were the hardest hit, with Hudson Pacific Properties Inc. HPP dropping 5.9%, Paramount Group Inc. PGRE tumbling 5.3%, Douglas Emmett, Inc. DEI declining by 3.9%, and Vornado Realty Trust VNO experiencing a 3.8% decrease.

Other real estate companies also suffered on Thursday, with Alexandria Real Estate Equities, Inc. ARE falling nearly 4%, Prologis Inc. PLD dropping 2.3%, and both CBRE Group Inc. CBRE and Boston Properties, Inc. BXP seeing declines of 2.2%.

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