The US real estate sector is showing signs of stabilizing after struggling with decades-high mortgage rates in the aftermath of the US Federal Reserve hiking interest rates. The average 30-year fixed mortgage rate tumbling to lows of 6.64% after peaking at 8% two months ago is the catalyst offering support to the embattled sector.

Mortgage Rates Drop Impact

When mortgage rates hit record highs of 8%, existing home sales slumped by 15%, resulting in an annual rate of 3.96 million transactions, the lowest since 2010. The slump resulted in the real estate sector dragging the S&P 500 down in the third quarter as the worst-performing sector in the index, going down 9.66%. The slump came as high interest rates weakened the industry. Likewise, rising home prices, surging mortgage rates, and low inventory rates have led to the freezing of home buying.

Nevertheless, the US real estate investment market has consistently outperformed the S&P 500 in improving macroeconomics. Over the past five years, the sector has returned 31.07%, beating the S&P 500 at 7.26%. The fact that the industry is projected to generate returns of up to 41% over the next five years affirms why it is one of the sectors to watch out for despite the recent slump.

Economists reiterating that the Federal Reserve is done with its 20-month-long rate hiking campaign could be the catalysts to offer much-needed support to the struggling sector. The central bank cutting interest rates from current highs of 5.25% early next year should result in further mortgage rates decline. A decline in mortgage rates should be the catalyst to draw more home buyers into the market, which is expected to result in increased transactions.

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While home prices are likely to remain elevated and even increase in some markets, experts expect prices in specific markets to soften. Pent-up demand and low inventory should bolster prices and provide unique investment opportunities for investors eyeing high-risk reward opportunities. Mortgage rates returning to a normal range of between 4% and 5% should attract more buyers.

Reduced mortgage rates should trigger strong demand for new and existing home sales, resulting in unique investment opportunities. For instance, some of the biggest beneficiaries are home builders like D.R. Horton and Lennar, which Warren Buffett has invested in recently. Amid strong demand for new homes, homebuilders will have no choice but to build more homes.

The homebuilder’s sector has been on a roll for the better part of the year, attributed to growing new home sales following a sharp decline last tear on the mortgage rate-induced slump. Recent home sales increased by over 23% in the first half of the year, helping support the home-builders sector.

ReelShares Real Estate Focus Fund

Investors looking to diversify their investment portfolio with exposure to the real estate sector should look for opportunities through the ReelShares Real Estate Focus Fund. The fund invests over 80% of its assets in high-risk reward real estate investments, including multi-family home property and real estate mutual funds.

The fund also invests in companies that have at least 50% of their real estate business and can allow investors to enjoy an internal rate of return of at least 20%. With as little as $2,000 in initial investment, investors can invest in two share class options for exposure in highly prospective real estate investments.

You may purchase ReelShares Commercial Real Estate Fund shares directly from Reel Shares or through a financial intermediary. The shares can be traded on the NYSE.

To purchase fund shares directly from ReelShares, register on the ReelShare website or call 212-804-7742.

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