The real estate sector was among the most hit during the pandemic, with analysts projecting the industry will emerge stronger from the crisis. The projection for high returns is exhibited by some of the top-performing exchange-traded funds (ETFs) in the sector.
According to data acquired by Finbold, the three top-performing real estate ETFs had a return on investment at an average of 45.69% between January 1, 2021, and June 2, 2021. Direxion Daily Real EstateBull (DRN), which invests in public equity markets across the United States, is the best performing real estate ETF with gains of 67.41%.
ProShares Ultra RealEstate (URE) ranks in the second spot with returns of 40.48%, while Credit Suisse X-LinksMonthly Pay 2xLeveragedMortgage REIT ETN (REML) is third with returns of 29.20%.
Driving factors for the real estate ETFs
The average ROI reflects the recovering real estate sector from the pandemic. Amid the health crisis, commercial and multi-dwelling landlords defaulted on bank loans when their tenants no longer had the income to pay their rents in the wake of mass unemployment. Furthermore, some homeowners also missed out on mortgage payments facing the threat of losing their homes.
Several factors are driving the resurgence in real estate ETF, including the booming homebuilding sector backed by low mortgage rates that have contributed to the demand for home buying. Home prices are also benefiting from lack of labor and lack of prime land. The situation is ideal for renters since the rising prices are keeping away buyers for now.
Home buying is mainly confined to people with equity, great credit, and employment. Additionally, with the recovering job situation, renting will potentially be highly dominated by middle-income and low-income consumers.
In the recent past, the United States has been dominated by inflation worries that have impacted the stock market in general, with technology taking the heat. Usually, an inflation environment makes real estate stocks one of the ideal investment opportunities. Alternatively, inflation can result in a spike in resale value and rental income. Generally, a market with low yields makes real estate stocks and ETFs lucrative.
Growth opportunity in real estate
As President Joe Biden embarks on sustainability measures, the real estate sector will likely benefit from demand emanating from environmentally conscious consumers. Companies that are committed to ensuring green building present an opportunity for growth in the sector. Additionally, the green building industry is moving towards wide-scale commercialization of the sector.
There is also no ruling out that real estate ETFs investments also carry risks, and it is influenced by factors that shape the general market. Investors opt to look out for the interest rates, employment rates, and other economic factors. A combination of these factors will influence the ability of the real estate ETF to return to the pre-pandemic levels. The current concern for investors is if the current real estate ETF growth trends will be sustainable in 2021.
However, the sector has received a boost with the opening of the economy due to the rollout of the coronavirus vaccines. Elsewhere, the ability to meet homeowners’ evolving demands will be a crucial factor.