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U.S. Treasury’s 10-year yield surged to a three-month high on renewed risk-on sentiments. Easing fears of trade war and global growth concerns, a decent earnings season, better-than-expected U.S. GDP growth rate for the third quarter and global easy money policies are fueling the equity rally. The S&P 500 has added 3.9% in the past month (as of Nov 11, 2019). 

The rally gave a boost to long-term treasury yields. Since housing stocks are sensitive to interest rates, a sudden spike in long-term bond yields could negatively impact the space and caused a little correction.

Apart from rising rate fear, downbeat home sales data also led to the slowdown in long-term bond yields. U.S. existing home sales, which make up about 90% of the total housing market, fell more than expected in September. Higher home prices seem to be the culprit (read: What's Driving Housing ETFs Despite Subdued Sales?).

Housing ETFs like iShares U.S. Home Construction ETF ITB and SPDR S&P Homebuilders ETF XHB gained 3.1% and 3.7%, respectively, in the past month, marking a slight underperformance compared to the broader market.

Now, with trade deal talks doing rounds and optimism sweeping the broader market, long-term bond yields are poised to go higher.

Investors should note that while the interest rate environment may be out of favor, technological disruption in the housing industry could be an area to bet on. Many real estate technology and brokerage names have been witnessing a post-earnings surge lately.

Substantial growth in each of the technology-driven platforms, including Zillow Offers, Redfin Now and Re/Max’s Booj are suggesting that technological disruption is about to break out in the homebuilding market. The Real Estate – Operations industry comes from a top-ranked Zacks industry (top 20%).

Zillow Group Inc. Z offers real estate and home-related brands on mobile and web. The company's brands focus on home lifecycle consisting of renting, buying, selling, financing and home improvement. Its real estate and rental marketplaces of consumer brands includes Zillow(R), Trulia(R), StreetEasy(R) and HotPads(R).

Zillow reported a loss of $64.6 million, or 31 cents a share. The reported loss was narrower than analysts’ expectation of 43 cents. Revenues were $745.2 million in the recently concluded quarter, which beat expectations of $718 million.

Redfin Corporation RDFN, engaged in providing residential real estate search and brokerage services, came up with quarterly earnings of 7 cents per share, beating the Zacks Consensus Estimate of 4 cents. The company’s revenues of $238.68 million beat the Zacks Consensus Estimate by 3.71%. The stock has a Zacks Rank #2 (Buy).

RE/MAX Holdings Inc. RMAX came up with quarterly earnings of 61 cents per share, beating the Zacks Consensus Estimate of 57 cents. The company posted revenues of $71.54 million for the quarter ended September 2019, surpassing the Zacks Consensus Estimate by 1.27%. The stock has a Zacks Rank #2.

Zillow, Redfin Corporation and RE/MAX Holdings have gained in the range of 8.9% to 12.8% in the past month (as of Nov 11, 2019), breezing past the S&P 500. In comparison, pure-play homebuilding stocks DHI (down 3.7%), PHM (up 4.7%) and LEN (down 0.5%) have put up a subdued show.

Per the Director of Research & ETFs of Hoya Capital Real Estate, “housing is one of the last remaining industries to see significant technological disruption.” “The streamlining of the homebuying transaction process will have positive ripple effects throughout the entire housing industry ecosystem, from home improvement to home financing, to new home construction.”

While Hoya Capital Housing ETF HOMZ invests about 20% in home financing, technology and services and is poised to benefit from the uptick in real estate technology stocks, ripple effects of the growth in that segment will also be felt by ITB and XHB (see all real estate ETFs here).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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