Mortgage Rates Are Still Low, and That's Good for REITs

Mortgage applications in the U.S. rose last week because of increased demand for refinancing. The pickup in demand is largely due to new lows in interest rates, which are a result of increased demand for U.S. Treasury securities in the wake of fears over a Greek exit from the eurozone.

The Mortgage Bankers Association said its seasonally adjusted index of refinancing applications rose 13%, but loan requests for home purchases dropped 2.4%, according to CNBC.

The low interest rates are also aiding REITs, which are able to pay better dividends. Their cost of borrowing is lower, making their businesses more profitable.


Ben Bernanke said the Federal Reserve will buy bonds to drive interest rates lower if the economy needs it. The Fed doesn't expect interest rates to rise until at least late 2014.

Business section: investing ideas
Borrowing is cheap, and REITs are taking advantage of it. If interest rates are expected to stay low, then they will continue to be more profitable.

Following is a list of residential and diversified REITs that have positive DuPont trends. How long will they see this profitability?

The list is sorted alphabetically. (Access free, interactive tools to analyze these ideas.)

1. Apollo Commercial Real Estate Finance (NYS: ARI) : Operates as a commercial real estate finance company in the United States. Market cap at $329.41 million; most recent closing price at $16.17. Most recent quarter's net profit margin at 62.99% vs. 47.35% year over year. Most recent quarter's sales/assets at 0.02 vs. 0.012 year over year. Most recent quarter's assets/equity at 2.084 vs. 3.065 year over year.

2. ARMOUR Residential REIT (NYS: ARR) : Market cap at $1.21 billion; most recent closing price at $6.85. Most recent quarter's net profit margin at 84.76% vs. 75.9% year over year. Most recent quarter's sales/assets at 0.006 vs. 0.005 year over year. Most recent quarter's assets/equity at 10.616 vs. 10.633 year over year.

3. AvalonBay Communities (NYS: AVB) : Engages in the development, redevelopment, acquisition, ownership, and operation of multifamily communities in the United States. Market cap at $13.72 billion; most recent closing price at $143.48. Most recent quarter's net profit margin at 22.88% vs. 13.28% year over year. Most recent quarter's sales/assets at 0.031 vs. 0.029 year over year. Most recent quarter's assets/equity at 1.88 vs. 2.307 year over year.

4. BRE Properties (NYS: BRE) : Engages in the development, acquisition, and management of multifamily apartment communities in the western United States. Market cap at $3.94 billion; most recent closing price at $51.27. Most recent quarter's net profit margin at 19.62% vs. 14.19% year over year. Most recent quarter's sales/assets at 0.029 vs. 0.028 year over year. Most recent quarter's assets/equity at 2.045 vs. 2.501 year over year.

5. Equity Residential (NYS: EQR) : Engages in the acquisition, development, and management of multifamily properties in the United States. Market cap at $18.56 billion; most recent closing price at $61.98. Most recent quarter's net profit margin at 27.54% vs. 27.3% year over year. Most recent quarter's sales/assets at 0.032 vs. 0.029 year over year. Most recent quarter's assets/equity at 2.831 vs. 3.045 year over year.

Interactive Chart: Press Play to compare changes in analyst ratings over the past two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.

At the time this article was published Kapitall's Danny Guttridge does not own any of the shares mentioned above. Data sourced from Google Finance. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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