Why Real Estate Stocks Suffered Today

Facts have proven that "Depression Days" are insurmountable for real estate stocks. Shares of many real estate stocks have seen significant declines due to fears that the Fed is less likely to lower its key interest rate. From real estate investment trusts (REITs) to brokers to mortgage finance companies, stocks across the industry were hit hard in Wednesday's trading session.

Among the many declining real estate stocks, theEasterly Government Properties (NYSE: DEA)fell by nearly 51 TP3T, fellow REITsVici Properties(New York Stock Exchange Stock Codes): VICI(math.) andKilroy Realty(New York Stock Exchange Stock Codes): KRC) also fell 61 TP3T and 71 TP3T, respectively. trading platform operatorOpendoor Technologies (NASDAQ resonance code: OPEN)The decline was even greater, losing nearly 11% of value.

Inflation Monster is untamed.

Compared to most sectors of the economy, real estate is highly dependent on central bank interest rates. Interest rates not only affect the cost of mortgages for buyers, but also the financing of new projects by developers.

Due to the persistence of inflation, interest rates are relatively high and look set to continue to rise. Wednesday morning, the U.S. government labor statistics department released the latest inflation indicator - the monthly consumer price index (CPI), the results are not optimistic. March inflation rate rose 3.5%, higher than economists expected, but also more than February's 3.2%.

One of the uncomfortable sides of the equation is that the Fed's goal of implementing a series of interest rate cuts this year looks unlikely to be realized. For many, it appears that high interest rates are here to stay.

This is probably the best-case scenario. If inflation continues to move higher in the coming month or months, there is a good chance that the Fed will resume its recent habit of raising interest rates, thereby putting even more pressure on borrowers. That's not good news for homebuyers, developers looking to build new homes or landlords. That's why a variety of stocks in the real estate sector were out of favor on Wednesday; almost all of them could be affected.

Realistic view of real estate

Despite this, and despite the very real prospect of higher mortgage and development loan prices, demand for housing remains strong. The U.S. economy continues to gain momentum, and people who want to buy homes are still willing to pay a premium for them. Like many investors' knee-jerk reactions, I think this one is overblown. However, these concerns are real, and perhaps the industry is not the most ideal place to build an investment portfolio at this time.

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Eric Volkman does not own any of the above stocks.The Motley Fool recommends Opendoor Technologies and Vici Properties.The Motley Fool recommends Easterly Government Properties.The Motley Fool has a disclosure policy. The Motley Fool recommends Easterly Government Properties.

Why are real estate stocks taking a hit today?