Construction spending bounced back strongly in March, driven mainly by a sharp increase in single-family home construction. Overall spending on private construction projects also posted solid growth. Construction spending narrowed over the past several months but is finally trying to rebound.
The housing sector has continued to play a key role in boosting construction activity. Although elevated mortgage rates are still a challenge, demand for single-family homes remains steady.
The housing market got a boost in March after mortgage rates declined in February. Given the upbeat sentiment, it would be ideal to invest in funds like Fidelity Real Estate Investment Portfolio FRESX and JHancock Real Estate Securities Fund Class 1 JIREX.
Construction Spending Jumps
According to data released by the Commerce Department last week, construction spending rose 0.6% in March, beating economists’ expectations of a 0.2% rise. This followed a 0.2% drop in February. Compared to the same period last year, construction spending was up 1.6% in March.
Private construction spending climbed 0.8% during the month after slipping 0.2% in February. Spending on residential construction advanced 1.7%, while investment in single-family housing surged 2.7%. Multi-family housing construction also edged higher by 0.3%. In contrast, spending on private nonresidential projects dipped 0.2%.
The construction sector has dealt with several headwinds in recent months. Persistently high inflation and the ongoing Iran conflict have kept mortgage rates elevated. At the same time, tariffs have contributed to higher home prices.
Despite these pressures, housing demand has stayed resilient. The National Association of Realtors said existing home sales rebounded in April, increasing 0.2% from the previous month to a seasonally adjusted annual pace of 4.02 million units.
A key factor behind the improvement was a drop in mortgage rates in late February. The average 30-year fixed mortgage rate fell to 5.98%, offering some relief to buyers. However, renewed inflation concerns and tensions linked to the Iran conflict pushed rates back up to 6.46% in early April.
Even so, demand for newly built homes remains strong, and sales could rise significantly if mortgage rates continue to decline.
2 Best Choices
As a result, we’ve chosen three funds from the real estate sector that are worth buying. These funds have given impressive 3-year and 5-year annualized returns, boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), offer a minimum initial investment within $5,000 and carry a low expense ratio.
The question here is why should investors consider mutual funds? Reduced transaction costs and diversification of portfolios without the several commission charges that are associated with stock purchases are the primary reasons why one should be parking their money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
Fidelity Real Estate Investment Portfolio fund aims for above-average income and long-term capital growth, consistent with reasonable investment risk. The majority of FRESX’s assets are invested in securities of companies principally engaged in the real estate industry and other real estate-related investments.
Fidelity Real Estate Investment Portfolio fund has three and five-year annualized returns of 6.4% and 4.5%, respectively. FRESX carries an expense ratio of 0.64% compared with the category average of 1.01%. Fidelity Real Estate Investment Portfolio carries a Zacks Mutual Fund Rank #1.
To view the Zacks Rank and past performance of all real estate funds, investors can click here to see the complete list of funds.
JHancock Real Estate Securities Fund Class 1 seeks appreciation of capital and current income over the long term. JIREX invests primarily in the equity securities of companies engaged in operations related to the real estate sector, which includes real estate investment trusts. JHancock Real Estate Securities Fund Class 1 invests in securities like common stocks, preferred stocks and convertible securities.
JHancock Real Estate Securities Fund Class 1 has a 3-year and 5-year annualized return of 8.3% and 4.9%, respectively. The annual expense ratio of 0.86% is lower than the category average of 0.95%. JIREX has a Zacks Mutual Fund Rank #2. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
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This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
