The economic laws of supply and demand are still favoring higher housing prices in the real estate market. This in turn could fuel big gains for the Direxion Daily MSCI Real Estate Bull 3X ETF (DRN).
As for DRN, the fund seeks daily investment results equal to 300% of the daily performance of the MSCI US IMI Real Estate 25/50 Index. The index 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 GICS.
DRN is up 20% year-to-date and over 200% within the last 12 months. The strong performance comes despite the fund not recovering to its pre-pandemic just yet.
The three-year chart highlights the steep drop-off during the all-too-familiar but easy-to-forget pandemic sell-offs in March of last year. As expected, the 50-day moving average nosedived below the 200-day moving average.
As prospects of a vaccination started to make light, DRN has started to recover, with the ‘golden cross’ showing itself on December 7, 2020 when the 50-day MA moved past the 200-day MA. Now, DRN is in a steady uptrend, but still below its pre-pandemic high of $36.09 set back in the beginning of February 2020.
The fund’s current price level is still over 50% below that February 2020 high, there’s still plenty of runway.
There Are Now More Real Estate Agents than Homes
Fundamentally, the real estate market also supports higher prices with tighter supply. A Wall Street Journal article noted the vast number of real estate agents juxtaposing the lack of homes available for sale.
It’s certainly a sign of the times for the housing market. But for DRN, it’s a potential catalyst for leveraged-fueled gains.
“The red-hot housing market has achieved a number of milestones this past year. Perhaps the most telling is this: There are more real-estate agents than homes for sale in the U.S,” the WSJ article said. “This phenomenon reflects both the extremely tight supply of homes on the market and how surging prices are persuading tens of thousands more Americans to try their hands at selling real estate.”
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