Real estate stocks feel the pain as borrowing costs climb

Mortgage rates rising to a three-year high dominated the real estate sector last week, as 30-year fixed-rate mortgages averaged 7.28% as of Oct. 1. With elevated interest rates, the Mortgage Bankers Association's Composite Index, a measure of the mortgage demand, continued to swoon.

Even early in the week, climbing Treasury yields pushed down housing and mortgage stocks. They didn't fare any better for the rest of the week.

The State Street Real Estate Select Sector SPDR (XLRE) slipped 1.5% during the week ended Oct. 2, a deeper loss than the S&P 500’s 0.3% decline. By sector, health REITs performed the best, rising 0.6%. Office REITs suffered the most, dropping 4.7%.

The stocks that dropped the most included Fermi (FRMI), the energy-focused REIT that supports AI development, which sank 11% during the week, and mortgage REIT Annaly Capital Management (NLY), which dove 10%.

Real estate stocks that rose the most included Bill Ackman's Howard Hughes Holdings (HHH), which gained 3.8%, and OutFront Media (OUT), which also increased 3.8%.

Other real estate news from the week:

• Apollo Commercial Real Estate (ARI) stockholders approved the company’s dissolution.

• Activist Irenic plans to vote against Independence Realty’s (IRT) $8.1B purchase of Centerspace (CSR).

• Brixmor Property (BRX) and Everview Partners agreed to acquire Slate Grocery REIT (SRRTF) (SGR.UN:CA) for $2.34B.

• National Healthcare Properties agreed to sell 40 outpatient medical facilities for ~$531M and plans to use the proceeds to help repay debt and fund senior housing operating portfolio acquisitions.

• The FHFA house price index and the S&P Cotality Case-Shiller Home Price Index showed that home prices rose more than expected in July, but the year-over-year increase lagged inflation growth.