Real estate stocks were the second best-performing sector in the S&P 500 Index on Thursday after the Federal Reserve's decision to hold rates steady sparked optimism that the central bank could be nearing the end of its tightening cycle.
Homebuilders and real estate investment trusts outperformed the broader market as investor appetite shifts toward more defensive, cash-producing sectors. The groups jumped 4.1% and 3.4%, respectively, compared to the S&P 500's 1.9% gain.
Earlier in the session, shares of homebuilders soared as much as 5.2%, for their biggest intraday gain since December 2022, before paring gains. REITs climbed for a fourth consecutive session after ending October at their lowest level since March 2020.
Homebuilders have been benefiting from tight inventory fueled by a decline in previously-owned home listings due to decades-high mortgage rates that give existing homeowners little incentive to sell. The group is up 37% year-to-date.
Seaport Research analyst Ken Zener upgraded several homebuilders including KB Home and Meritage Homes to buy from neutral Thursday, citing a "historically favorable environment."
As for REITs, "any signal that rates may stop increasing, or potentially even fall as is being signaled by moves in the 10-year yield this week, could be very helpful in determining property values, facilitating refinancing and potentially unlocking transactions," said Bloomberg Intelligence analyst Jeffrey Langbaum.
Thursday's gains serve as a ray of hope for many commercial real estate names who've been crippled by outsized borrowing costs and uncertainties about how long rates would remain elevated.
Among REITs, office owners drove the sector higher, with hotel and resort names trailing closely behind.
The cohort has also been reacting to a sharp drop in Treasury yields over the past few sessions and a gradual pullback over the last month, Langbaum added. The US 10-year Treasury yield fell for the second day in a row on Thursday, tumbling below 4.7%.
But not all real estate names were up, Zillow Group Inc. fell 2.6% Thursday after reporting third-quarter earnings. A day earlier, digital real estate stocks had rebounded after a jury found the National Association of Realtor guilty of colluding to maintain high brokerage commissions.
