Currently, though the U.S. economy may not have many economic stats in its favor, the housing market is certainly a major bright spot at the moment. Per the recent data provided by the Commerce Department, in Apr 2016, new home sales reached highest levels since 2008. Further, the home prices are now back to the near-record highs, a distinct sign of recovery of the housing market. In fact, the S&P/Case-Shiller national home-price index has continued their rise over the past 12 months.
Positive housing data is certainly a healthy sign for the home builders, construction sector. Also, one variety of REIT, known as the mortgage REIT (“mREIT”) stands to gain from the housing recovery.
Housing Recovery to Benefit mREITs
mREITs offer real estate financing through the purchase of mortgages and mortgage-backed securities (“MBS”). They raise funds in short-term markets like repurchase agreements or repo and earn profits from the spread between interest income on their mortgage assets and their funding costs.
In short, usually mREITs borrow for a short-term, lend for a long-term and benefit from the difference. This implies that they gain more when the gap between the short-term and the long-term rates increases i.e. the yield curve becomes steeper.
If housing market continues to recover, the demand for mortgages will rise even if mortgage rates increase. This will reduce the chances of a negative or a flattening yield.
mREIT Stocks to Buy Now
Given this positive housing market trend, selecting the top-ranked mREITs is likely to fetch better returns. Alongside, positive current estimate changes and good dividend yields further add to their attraction.
Capstead Mortgage Corp. CMO is a Dallas, TX-based mREIT, engaged in investing in a portfolio of residential mortgage pass-through securities, issued and is guaranteed by government-sponsored enterprises.
Zacks Rank #2 (Buy)
% Change in F1 Est. (4 weeks) = 0.51
Dividend yield=10.77%
With headquarters in Annapolis, MD, Hannon Armstrong Sustainable Infrastructure Capital, Inc. HASI is engaged in providing debt and equity financing for infrastructure projects.
Zacks Rank #1 (Strong Buy)
% Change in F1 Est. (4 weeks) = 14.63
Dividend yield= 5.90%
Based in New York, Two Harbors Investment Corp. TWO is engaged in investing in, financing and managing residential MBS and mortgage loans.
Zacks Rank #2
% Change in F1 Est. (4 weeks) = 2.97
Dividend yield=10.85%
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