High demand, strong borrowing conditions and a host of promising economic signals made 2018 seem like a ripe ecosystem for real estate investments.

Homebuilders like Lennar Corporation and D.R. Horton Inc. entered the year pushing new all-time highs that were 30 to 40 percent above their average range in 2017. At the same time, REITs like Prologis Inc and Equinix Inc. also showed strong momentum, though some in the sector struggled early in the year.

Now, as we approach the back end of 2018, property-based equity is flagging under the weight of high materials’ costs, and rising interest rates, along with the threat of high housing costs, as well as inflation driving down consumer and business buying power. Just take a look at the chart below for the Direxion Daily MSCI Real Estate Bull and Bear 3X Shares ETF (DRN, DRV) and Daily Home Builders & Supplies Bull 3X Shares ETF (NAIL).

DRN & DRV vs. MSCI REIT Index

Data Range: 9/24/2018 – 10/23/2018. Source: Bloomberg. The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate. An investor’s shares, when redeemed, may be worth more or less than their original cost; current performance may be lower or higher than the performance quoted. For standardized performance and the most recent month-end performance, click here.

NAIL vs. Dow Jones Home Construction Index

a homebuilders-etfs-stocks-102418 (1)

Data Range: 9/24/2018 – 10/23/2018. Source: Bloomberg. The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate. An investor’s shares, when redeemed, may be worth more or less than their original cost; current performance may be lower or higher than the performance quoted. For standardized performance and the most recent month-end performance, click here.

This trend isn’t surprising, with one more interest rate hike expected before the year is out and persistent headwinds for builders in the form of tariffs on basic materials, the market is rotating to more stable options.

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