Real Estate Stocks Trailing in 2022

Inflation, High Interest Rates Plague Most Categories Except Energy

By: Lou Hirsh and Nicole Shih

As financial data firms compile their year-end lists of winners and losers based on stock market returns, analysts generally agree that real estate companies won’t end up on the winning side for 2022.

Soaring interest rates are generally not good for rate-sensitive industries including technology and real estate, which have relied for several years on historically low interest rates keeping borrowing costs similarly low. The Federal Reserve continues to hike its key lending rate in a bid to tame inflation which, while declining in recent months, remained near 40-year highs at 7.1% in November, according to the latest government numbers.

Based on an analysis of S&P 500 data for 11 industry categories, financial analytics firm Macrobond projected on Dec. 19 that real estate stocks will finish 2022 with investor returns down 29% for the year. That's on par with the 28% decline expected for information technology, though not as steep as the 41% decline projected for communication services.

The Macrobond analysis projects negative returns for 2022 for every major industry category except energy, which is on track for an aggregate gain of 52% for the year.

The firm’s data shows real estate stocks generally had a good year in 2019, registering a 25% investment gain before recession fears emerged in the early days of the pandemic in 2020. Real estate had a 5.2% decline in 2020 before rebounding to a historically high 42% gain in 2021, bested only by energy with a 48% gain as interest rates stayed low.

But that party came to an abrupt halt in 2022. Real estate ranked ninth among 11 tracked sectors for expected investment returns this year as of Dec. 19, according to Macrobond.