Can Lower Mortgage Rates Prop Up Real Estate ETFs?

The 10-year Treasury yield hit below 1% after the Federal Reserve instituted a 50-basis point cut on Tuesday, sending the markets in a daze as coronavirus fears continue to roil the major U.S. stock market indexes. Following the announcement, the markets surged and subsequently fell as more uncertainty crept into the minds of investors.

Meanwhile, in mortgage land, rates are also falling, but not because of the central bank’s interest rate policy. They’re, in essence, marching to the beat of the markets.

“The Fed is catching up,” said Holden Lewis, mortgage and real estate expert at NerdWallet. “Mortgages respond to market forces and not to the Fed. The Fed is actually following and not leading when it comes to mortgage rates.”

Lower mortgage rates can help spur a rise in homebuying or more current homeowners refinancing their mortgages. The question now, however, is how low can mortgages go, which could put a squeeze on mortgage lenders who must toe the line between low rates and volume of applications.

“A big question now becomes what kind of capacity lenders have,” Kapfidze said. “If you don’t have enough people to process the volume you’re getting in, you’re not going to lower rates to attract more volume.”

Getting Real Estate ETF Exposure

Investors who want broad exposure to the real estate market via ETFs can start with the Vanguard Real Estate ETF (NYSEArca: VNQ). VNQ seeks to provide a high level of income and moderate long-term capital appreciation by tracking the performance of the MSCI US Investable Market Real Estate 25/50 Index that measures the performance of publicly traded equity REITs and other real estate-related investments. VNQ is up 7.26 percent year-to-date, according to Yahoo Finance Performance numbers.

Traders will want to keep on an eye on when playing leveraged real estate ETFs like the Direxion Daily MSCI Real Est Bull 3X ETF (NYSEArca: DRN) and Direxion Daily MSCI Real Est Bear 3X ETF (NYSEArca: DRV).

Overall, Direxion ETFs will help traders:

  • Magnify your short-term perspective with daily 3X leverage
  • Go where there’s opportunity, with bull and bear funds for both sides of the trade; and
  • Stay agile – with liquidity to trade through rapidly changing markets

The MSCI US IMI Real Estate 25/50 Index (M2CXVGD) is designed to measure the performance of the large-, mid- and small capitalization segments of the U.S. equity universe that are classified in the real estate sector as per the Global Industry Classification Standard (GICS).

For more market trends, visit the ETF Trends.