Could Real Estate Rebound Following the Fed’s Cut?

Last week, the Federal Reserve cut interest rates in a long-anticipated move by the markets. Notably, the cut wasn’t a tiny 25 bps reduction; instead, it was a half-percentage point cut off the Fed funds rate, taking us from 5.5% down to 5%.

Image: Fed funds interest rate (source: Trading Economics) 

For home buyers, this move is significant. While the Fed funds rate doesn’t directly impact mortgage rates, it’s a substantial influence. That is, as the Fed funds rate drops, mortgage rates tend to follow. 

At their recent peak, mortgage rates hit 7.8% last fall. Now, they are sitting closer to 6%.

Image: Average 30-year mortgage rates versus Fed funds rate (source: The Washington Post)

While it may not seem significant, it’s enough to awaken potential home buyers to start shopping for a house. 

“It’s the moment we’ve all been waiting for: People are reinvigorated… They’ve had this number in their head — ‘If rates are in the 5’s, even though that’s higher than we’re used to, it’s something we can work with.’ Part of it is affordability, and part of it is psychology,” real estate broker Dana Bull told The Washington Post.

In other words, the latest move from the Fed may kick off a new wave of buyers entering the market, buoying the sector and its stocks.

So, how can your portfolio benefit from this potential tailwind?

Real Estate Stocks

Identifying the best stocks can be daunting, so we’ve simplified the process at WallStreetZen. Using our filterable database (Best Real Estate Stocks to Buy Now), you can find the top names according to specific, pre-defined criteria. 

Image: Screenshot of WSZ’s Best Real Estate Stocks to Buy Now (source: WallStreetZen)

By default, the database will already be filtered for the Real Estate sector. This leaves us with 261 names to choose from. 

Next, we click “Edit Filters” to add more. You can select from dozens of criteria. For our purposes, we simply want real estate stocks with large market caps and a strong Zen Score (which implies healthy fundamentals). 

Image: Screenshot of filter criteria (Sector: Real Estate / Market Cap: >=$10B / Zen Score: >=40). Source: WallStreetZen

After filtering for real estate, $10B+ market cap, and Zen Scores of 40 or higher, we’re left with 12 stocks. 

Image: Filtered stock list (source: WallStreetZen)

With the now filtered list, we can choose from our preferred names. In this instance, we sorted by highest Zen Score, selecting Ke Holdings Inc. (NYSE: BEKE), CBRE Group Inc. (NYSE: CBRE), and Realty Income Corp. (NYSE: O) as our top pics in the sector.

The Bottom Line

With the Federal Reserve’s rate cut, real estate may be poised for a rebound, especially as mortgage rates inch downward. While the full impact of this cut will take time to materialize, early signs of renewed interest from home buyers suggest potential momentum in the sector. 

For investors looking to capitalize on this shift, now may be the time to explore real estate stocks. By focusing on companies with solid fundamentals and market positions, such as those identified through tools like WallStreetZen’s filterable database, investors can benefit from the possible tailwinds in the real estate market.

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