Can Real Estate Bank on a Summer Recovery?
Editor's note: Any and all references to time frames longer than one trading day are for purposes of market context only, and not recommendations of any holding time frame. Daily rebalancing ETFs are not meant to be held unmonitored for long periods. If you don't have the resources, time or inclination to constantly monitor and manage your positions, leveraged and inverse ETFs are not for you.
It’s been a rough few years for the real estate sector. Between high interest rates and inflation* eating into the pocketbooks of consumers, there have been serious headwinds with respect to demand in the sector. But as we go into peak real estate season for the year, could we be on the cusp of some pleasant surprises?
Home Prices Continue Climb – But Gains are Concentrated
Just last week, we had the Case-Shiller Home Price Index show a 7.4% gain year-over-year for the month of March. This report only covers the home prices from the top-20 metropolitan regions in the United States, but unfortunately, these gains aren’t making their way to the entire real estate sector.
There seems to be a major disparity between what’s going on in commercial real estate and residential real estate. The former is apparently suffering more from macroeconomic headwinds, while the latter has its own divergence unfolding too.
In the residential real estate market, there’s been a divergence between new homes and existing homes. For what it’s worth, the resilient labor market has prevented a major wave of foreclosures, but if unemployment starts to rise, we could see a new wave of defaults hit real estate.
Traders that think the short-term outlook is grim for the real estate space may find a position in Direxion’s Daily Real Estate Bear 3X Shares (Ticker: DRV), which seeks daily investment results, before fees and expenses, of 300% of the opposite (or inverse) of the performance of the Real Estate Select Sector Index*.
Below is a daily chart of DRV as of May 30, 2024.
Source: TradingView.com
Candlestick charts display the high and low (the stick) and the open and close price (the body) of a security for a specific period. If the body is filled, it means the close was lower than the open. If the body is empty, it means the close was higher than the open.
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 the most recent month-end performance go to Direxion.com/etfs. For standardized performance click here.
The slanted blue lines represent an uptrend and/or downtrend. An uptrend describes the price movement of a financial asset when the overall direction is upward. A downtrend describes the price movement of a financial asset when the overall direction is downward.
Could Rate Cuts Provide Relief?
Coming into 2024, markets were discounting a flurry of rate cuts from the Federal Reserve. Unfortunately for interest rate-sensitive markets like real estate, those haven’t materialized yet, and it appears as though the goalposts keep moving backwards.
The Fed has been data dependent with respect to their next move. Traders need to keep an eye on the inflation report for clues on what the Fed might do next.
The next inflation report is set to be released on June 12. If unemployment starts to rise again, and inflation remains contained, we may finally get a rate cut in the coming months.
In such a scenario, Direxion’s Daily Real Estate Bull 3X Shares (Ticker: DRN), which seeks daily investment results, before fees and expenses, of 300% of the performance of the Real Estate Select Sector Index, could see a nice rebound.
Below is a daily chart of DRN as of May 30, 2024.
Source: TradingView.com
Candlestick charts display the high and low (the stick) and the open and close price (the body) of a security for a specific period. If the body is filled, it means the close was lower than the open. If the body is empty, it means the close was higher than the open.
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 the most recent month-end performance go to Direxion.com/etfs. For standardized performance click here.
The slanted blue line represents a downtrend. A downtrend describes the price movement of a financial asset when the overall direction is downward.
More Real Estate and Rate Plays
Traders looking to speculate on the homebuilding sector on the bullish end may find a position with Direxion’s Daily Homebuilders & Supplies Bull 3X Shares (Ticker: NAIL), which seeks daily investment results, before fees and expenses, of 300% of the performance of the Dow Jones U.S. Select Home Construction Index*.
Traders seeking to take on leveraged bond positions may find positions in the Direxion Daily 20+ Year Treasury Bull 3X Shares (Ticker: TMF) or the Direxion Daily 20+ Year Treasury Bear 3X Shares (Ticker: TMV), which seek daily investment results, before fees and expenses, of 300%, or -300%, of the performance of the ICE U.S. Treasury 20+ Year Bond Index*.
*Definitions and Index Descriptions
An investor should carefully consider the Fund’s investment objective, risks, charges, and expenses before investing. The Fund’s prospectus and summary prospectus contain this and other information about the Direxion Shares. To obtain the Fund’s prospectus and summary prospectus call 866-476-7523 or visit our website at direxion.com. The Fund’s prospectus and summary prospectus should be read carefully before investing.
Leveraged and Inverse ETFs pursue daily leveraged investment objectives which means they are riskier than alternatives which do not use leverage. They seek daily goals and should not be expected to track the underlying index over periods longer than one day. They are not suitable for all investors and should be utilized only by sophisticated investors who understand leverage risk and who actively manage their investments.
The Real Estate Sector Index is provided by S&P Dow Jones Indices (the “Index Provider”) and includes securities of companies from the following industries: real estate management and development and real estate investment trusts (“REITs”), excluding mortgage REITs.
The Dow Jones U.S. Select Home Construction Index (DJSHMBT) measures U.S companies in the home construction sector that provide a wide range of products and services related to homebuilding, including home construction and producers, sellers and suppliers of building materials, furnishings and fixtures and also home improvement retailers.
The ICE U.S. Treasury 20+ Year Bond Index (IDCOT20TR) is a market value weighted index that includes publicly issued U.S. Treasury securities that have a remaining maturity of greater than 20 years. Eligible securities must be fixed rate, denominated in U.S. dollars, and have $300 million or more of outstanding face value, excluding amounts held by the Federal Reserve. Securities excluded from the Index are inflation-linked securities, Treasury bills, cash management bills, any government agency debt issued with or without a government guarantee and zero-coupon issues that have been stripped from coupon-paying bonds.
One cannot directly invest in an index.
The "Real Estate Sector Index" is a product of S&P Dow Jones Indices LLC ("SPDJI"), and has been licensed for use by Rafferty Asset Management, LLC ("Rafferty"). Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC ("S&P"); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC ("Dow Jones"); and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by Rafferty. Rafferty’s ETFs are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the Real Estate Select Sector Index.
Direxion Shares Risks – An investment in each Fund involves risk, including the possible loss of principal. Each Fund is non-diversified and includes risks associated with the Funds concentrating their investments in a particular industry, sector, or geographic region which can result in increased volatility. The use of derivatives such as futures contracts and swaps are subject to market risks that may cause their price to fluctuate over time. Risks of each Fund include Effects of Compounding and Market Volatility Risk, Leverage Risk, Market Risk, Counterparty Risk, Rebalancing Risk, Intra-Day Investment Risk, Other Investment Companies (including ETFs) Risk, Cash Transaction Risk, Passive Investment and Index Performance Risk, and risks specific to the securities of the real estate sector. Real estate securities are subject to risks similar to those associated with direct ownership of real estate, including changes in local and general economic conditions, supply and demand, interest rates, environmental liability, zoning laws, regulatory limitations on rent, property taxes, operating expenses and losses from casualty or condemnation. Additional risks include, for the Direxion Daily Real Estate Bull 3X Shares, Daily Index Correlation Risk, and for the Direxion Daily Real Estate Bear 3X Shares, Shorting or Inverse Risk and Daily Inverse Index Correlation Risk. Please see the summary and full prospectuses for a more complete description of these and other risks of each Fund.
Distributor: Foreside Fund Services, LLC.