Riya Anand
8 min read
The Zacks REIT and Equity Trust industry is bearing the brunt of mortgage rate volatility, fueled by persistent inflation and broader economic uncertainty. With mortgage rates averaging in the above-6% range in recent weeks, industry players are likely to face continued earnings pressure in the near term.
Ongoing affordability challenges in the housing market are weighing on purchase originations and refinancing activity. However, companies like Ellington Financial LLC EFC and Adamas Trust, Inc. ADAM are well-poised to navigate industry challenges.
About the Industry
The Zacks REIT and Equity Trust industry comprises mortgage REITs, also known as mREITs. Industry participants invest in and originate mortgages and mortgage-backed securities (“MBS”), and provide mortgage credit for homeowners and businesses. Typically, these companies focus on either the residential or commercial mortgage markets. Some invest in both markets through asset-backed securities. Agency securities are backed by the federal government, making them safer bets and limiting credit risks. Such REITs raise funds in the debt and equity markets through common and preferred equity, repurchase agreements, structured financing, convertible and long-term debt, and other credit facilities. The net interest margin, the spread between interest income on mortgage assets and securities held, as well as funding costs, is a key revenue metric for mREITs.
What’s Shaping the Future of the mREIT Industry?
Volatility in Mortgage Rates Keeps Buyers on Sidelines: The 30-year fixed mortgage rate has climbed in recent weeks to the above-6% range from the low-6% range at the start of 2026.
The Federal Reserve has kept interest rates unchanged so far in 2026 as policymakers continue to balance rising inflation with a resilient labor market. Against this backdrop, mortgage rates are likely to remain elevated in the near term. Higher borrowing costs, combined with affordability pressures and economic uncertainty, have discouraged many potential homebuyers from entering the market.
As a result, mortgage origination and refinancing activity are under pressure. This trend is expected to heighten operational and financial challenges for mREIT industry players, while weighing on gain-on-sale margins and limiting investment activity.
Industry Resorts to Dividend Cuts as Book Values Erode: Elevated interest rates, persistent mortgage market volatility and the widening spread between 30-year Agency mortgage-backed securities (MBS) and 10-year U.S. Treasury yields have reduced the value of Agency MBS portfolios.
