While the S&P 500 has experienced some turbulence recently, it remains in positive territory for the year, boasting a 6% increase. However, the real estate sector is not sharing in this upward trend and is instead experiencing significant challenges.

With the looming possibility of enduring high interest rates, the real estate market is under pressure, sparking ongoing discussions about the Federal Reserve’s potential rate cuts within the year.

Currently, the real estate sector is the weakest link in the S&P 500 for 2024, witnessing a decline of over 10%. This downturn is primarily attributed to the last two weeks, coinciding with a surge in Treasury yields to their highest point since November, leading investors to reluctantly accept that the anticipated rate reductions may not materialize.

Investors now grapple with the decision to capitalize on the market’s downturn or heed the adage of avoiding the attempt to “catch a falling knife.”

Contrasting the Federal Reserve’s criticized rental metrics, Uma Moriarity, a seasoned investment strategist at CenterSquare, finds optimism in the real-time rent indicators she monitors. Speaking to Yahoo Finance, Moriarity highlighted, “When considering the actual costs of shelter, they are substantially lower than the reported figures, suggesting that inflation is moving towards a more favorable direction.”

Her confidence in the possibility of three rate cuts this year remains unshaken, despite the market’s shift away from this sentiment. Moriarity’s assurance also extends to the real estate market, bolstered by the current affordability of stocks. The adverse impact of rising rates on real estate stocks is twofold: the burden of debt becomes heavier for these companies, and their stocks, which offer relatively high dividend yields, must compete with other investment vehicles like money market funds. Historically, real estate stocks have struggled to gain momentum amidst increasing rates. However, if Moriarity’s and Citigroup’s predictions hold true, the rates may not climb as persistently as the broader market expects.