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January Pending Home Sales Rise, but Real Estate ETF ‘VNQ’ Falls

This article was originally published on ETFTrends.com.

Pending home sales rebounded during the month of January, but the Vanguard Real Estate ETF (VNQ) fell 1.12 percent on Wednesday.

Contracts to buy existing homes rose 4.6 percent in January versus December, according to a monthly survey from the National Association of Realtors (NAR). However, contracts were still 2.3 percent lower versus a year ago, which makes it thirteenth straight months of declines annually.

Furthermore, the central bank has been sounding increasingly dovish as of late, which could mean that less rate hikes than anticipated for 2019–something that could help give the sector a much-needed boost.

“A change in Federal Reserve policy and the reopening of the government were very beneficial to the market,” said Lawrence Yun, chief economist for the NAR. “Homebuyers are now returning and taking advantage of lower interest rates, while a boost in inventory is also providing more choices for consumers.”

VNQ seeks to provide a high level of income and moderate long-term capital appreciation by tracking the performance of the MSCI US Investable Market Real Estate 25/50 Index that measures the performance of publicly traded equity REITs and other real estate-related investments. VNQ is up 11.85 percent year-to-date, according to Yahoo Finance Performance numbers.

Rising in conjunction with mortgage rates are home prices, putting prospective buyers out of reach. Recent data from the National Association of Realtors showed that the Quarterly Housing Affordability Index has been dropping thanks to a rise in median home prices.

January Pending Home Sales Rise, but Real Estate ETF 'VNQ' Falls 1

In December, the National Association of Home Builders/Wells Fargo Housing Market Index hit a three-year low. However, builder confidence rebounded as the index went up to 58 in January compared to the 56 reading in December.

“The buyers and the sellers are in this dance right now where it’s a little harder to put deals together because nobody’s certain where the market is going to land,” said Glenn Kelman, CEO of Redfin in an interview on CNBC’s Power Lunch. “It’s a little bit better than it was in the fourth quarter, we’re seeing stronger buyer demand, but it’s not as if people are willing to pay any price to get a home, which is what we saw at the beginning of 2018 and for the past four years before that.”

For investors looking for continued upside in U.S. cyclical sectors over defensive sectors, the Direxion MSCI Cyclicals Over Defensives ETF (RWCD) offers them the ability to benefit not only from cyclical sectors potentially performing well, but from their outperformance compared to defensive sectors.

Conversely, if investors believe that U.S. defensive sectors will outperform cyclical sectors, the Direxion MSCI Defensives Over Cyclicals ETF (RWDC) provides a means to not only see defensive sectors perform well, but a way to capitalize on their outperformance compared to cyclical sectors.

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