As part of its efforts to stem the tide of the coronavirus contagion in the capital markets, the Federal Reserve ramped up its bond-buying in addition to slashing interest rates to zilch. In turn, this will help drop mortgage rates vis-a-vis 2008 when a similar program helped to drive down rates during the housing crisis.

“The Fed is creating liquidity and creating demand for mortgage-backed securities, which drives down rates,” said Mark Goldman, a loan officer with C2 Financial in San Diego. “It will take a few weeks for things to settle down, but once that happens we could see rates return to record lows of near 3%, and there’s a chance we could see a sub-3% rate for a 30-year fixed conforming loan.”

Can lower rates open up opportunities for real estate-related ETFs?

30 Year Mortgage Rate Chart

30 Year Mortgage Rate data by YCharts

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).

Can Lower Rates Spur U.S. Economy?

Will falling rates help spur more home buying or other consumer lending activities? This creates an opportunity for investors to capitalize on the Direxion FTSE Russell US Over International ETF (NYSEArca: RWUI).

RWUI offers investors the ability to benefit not only from domestic U.S. markets potentially performing well but from their outperformance compared to international markets.

  • Seeks investment results, before fees and expenses, that track the Russell 1000®/FTSE All-World ex-US 150/50 Net Spread Index (the “index”).
  • The fund, under normal circumstances, invests at least 80% of its net assets (plus borrowing for investment purposes) in securities that comprise the Long Component of the index or shares of ETFs on the Long Component of the index.
  • The index measures the performance of a portfolio that has 150% long exposure to the Russell 1000® Index (the “Long Component”) and 50% short exposure to the FTSE All-World ex-US Index (the “Short Component”).

For more relative market trends, visit our Relative Value Channel.