The economy continues to hum along with a relatively healthy jobs report. That should keep real estate traders appeased given the correlation with low unemployment and housing demand, but cautious optimism is warranted.
As Newsweek explained, there is a relationship between unemployment rates and housing demand. Lower unemployment rates can translate to increased demand. That should feed into more optimism for traders eyeing the real estate sector.
Macroeconomic Pushback
"The number of unemployed declined by 35,000 in January, bringing the unemployment rate down to 4 percent," National Association of Realtors' (NAR) chief economist Lawrence Yun told Newsweek.
However, there is some macroeconomic pushback, as low unemployment rates could keep interest rates elevated. Of course, that would make real estate buyers think twice before sending an offer.
Unemployment rates aside, market experts are also seeing signs that the overall U.S. labor market could be cooling. External factors could be contributing to fewer job openings, thereby tamping down overall growth.
"Job growth may have come in lower than predicted because of the impacts of winter storms in the East and South, as well as the wildfires in Los Angeles. The unemployment rate fell to 4 percent," said Bright MLS' Chief Economist Lisa Sturtevant, Ph.D.
Tepid Job Growth in Certain Sectors
"The biggest gains were in retail, healthcare and professional, scientific and technical services sectors, while job growth in the manufacturing and construction sectors was more tepid," she added.
For the broad economy, the latest job market report is encouraging. However, the real estate sector brings its own set of nuances, making it respond differently to the labor market data.
"With more jobs being added in relatively high-wage sectors, and overall earnings on the rise, prospective homebuyers will feel more confident heading into the spring housing market," Sturtevant said further.
"However, with employers still adding jobs at a healthy pace and inflation above the Federal Reserve's 2 percent target, the central bank is likely to keep interest rates unchanged at its meeting in March, which means mortgage rates could remain in the high 6-percent range heading into spring," she noted.
The Bull & Bear Side of Real Estate
The Direxion Daily Real Estate Bull 3X Shares (DRN) is up almost 10% for the year, giving bullish traders something to cheer about in the interim. The fund seeks daily investment results equaling to 300% of the performance of the Real Estate Select Sector Index, giving traders broad-based exposure as opposed to single stocks, where concentration risk is magnified.
The Real Estate Select Sector Index (IXRETR) is provided by S&P Dow Jones Indices. This includes securities of companies from the following industries: real estate management, real estate development, and real estate investment trusts (REITs), excluding mortgage REITs.
On the bearish side, if high interest rates keep prospective buyers on the fence and demand dampens, traders can take the other side with equal leverage. This is available in the Direxion Daily Real Estate Bear 3X Shares (DRV).
