In case you haven’t noticed, the S&P 500 Index is looking a little different these days. Once a subindustry of the financials sector, real estate now has its own zip code in the universe of blue chip stocks. It’s the first time since 1999 that such a change has been made to the S&P’s composition.
The new sector has a weighting of nearly 3 percent, all of it taken out of financials.
As I told CNBC Asia’s Bernie Lo recently, I think real estate’s promotion will attract more institutional and individual investors to the space. It tells them this is no longer a niche market but one with a distinct and significant presence, with its own unique business drivers.
This has been a long time coming, to be perfectly honest. Ever since the housing and financial crisis, real estate investment trusts (REITs) have been pulling in some serious cash as more become available for trading on the New York Stock Exchange and elsewhere. Altogether, REITs currently have a market cap of over $1 trillion, according to REIT.com.
With investors on the hunt for yield, it’s not hard to see why. As of August 31, the FTSE NAREIT All Equity REITs Index yielded an average of 3.61 percent, compared to the S&P 500’s 2.11 percent. During 2015, stock exchange-listed REITs paid out a whopping $46.5 billion in dividends.
Builders Rush to Meet Demand
Looking just at the residential housing market, business is definitely booming. With 30-year mortgage rates at below 3.5 percent, the market is scorching hot in many parts of the U.S.—so much so, some builders are reporting a shortage in construction workers to meet demand.
New construction starts rose to 1.2 million in July, beating analysts’ forecasts and suggesting the U.S. housing market appears to have finally made a full recovery eight years following the recession, with Bloomberg calling this the “strongest home sales since the start of the economic expansion.â€
