Pending home sales in the U.S. declined a whopping 8.6% in June from the month prior as the red-hot housing market cools down, but ETFs focused on housing appear on track to continue to outperform the broader real estate sector.
The National Association of Realtors reported the figure Wednesday morning, along with a 20% reduction in contract signings on a year-over-year basis.
The steep drop in month-over-month home sales is the result of the Federal Reserve’s tightening cycle making financing more expensive, while the average home sold in the U.S. last quarter hit a record high of $525,000, according to Census Bureau data.
That combination of expensive price tags and expensive financing sent mortgage rates spiking through the spring, topping out at 5.81% last month. That’s the highest level since 2009.
The Realtors report estimated a 13% decline in sales for the year before rising again in 2023, and expect mortgage rates to settle around the 6%
“Contract signings to buy a home will keep tumbling down as long as mortgage rates keep climbing, as has happened this year to date,” said NAR Chief Economist Lawrence Yun in a statement alongside the report.
Real estate has struggled alongside the rest of the equity sectors this year due to rate hikes, inflation and fears of a looming recession. However, the iShares Residential & Multisector Real Estate Sector ETF (REZ) has outperformed its more diversified competitors by approximately 1.6% year-to-date despite its 15.4% loss.
Forward-looking indicated yields for the two mortgage income-focused ETFs also fell slightly, with the VanEck Vectors Mortgage REIT Income ETF (MORT) dropping approximately 15 basis points to a 10.43% yield, while the iShares Mortgage Real Estate ETF (REM) fell 12 basis points to 7.31%, according to Koyfin data.
However, those yields are in the top 50 for all ETFs over the past 12 months, according to FactSet estimates.
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