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Rate Decline Could be Fueling Mortgage ETF REM

This article was originally published on ETFTrends.com.

Freddie Mac, a secondary market player that helps add liquidity to the mortgage industry, said Thursday that the average interest rate on a 30-year, fixed-rate mortgage dropped by three basis points to 4.55 percent a week ago--the  iShares Mortgage Real Estate Capped ETF (REM)  has been experiencing a recent uptick this week and could be benefitting from the rate decline.

Rate Decline Could be Fueling Mortgage ETF

Related: Janus Files for Mortgage-Backed Securities ETF

REM seeks to track the investment results of an index composed of U.S. REITs that hold U.S. residential and commercial mortgages--the FTSE NAREIT All Mortgage Capped Index.

Conversely, mortgage applications dropped in conjunction with the interest rate dip. According to data from CoreLogic, a real estate analytics company, existing homeowners are "more likely to take out a second loan rather than refinance to a higher rate," which would then mean that applications for home equity lines of credit have risen over refinances.

Additionally, interest rate declines have occurred in five of the last six weeks, but still, the average interest rate from a year ago was lower at 3.96 percent. In spite of the recent interest rate declines, long-term loan rates are still at their highest levels in seven years--a sign that the economy is still in a growth phase.

Nonetheless, REM is still managing to churn out returns of 0.57 percent year-to-date, 3.46 percent in a year and 11.47 percent the last three years. In the past five days, REM is up 2.65 percent.

Related: Mortgage Interest Rates: To Buy or Not to Buy – That is the Question

For more ETF trends in the real estate industry, click here.

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