Mortgage REITs (mREITs) provide financing for income-producing real estate by purchasing or originating mortgages and mortgage-backed securities (MBS) and earning income from the interest on these investments.
mREITs help provide essential liquidity for the real estate market. mREITs invest in residential and commercial mortgages, as well as residential mortgage-backed securities (RMBS) and commercial mortgage-backed securities (CMBS). mREITs typically focus on either the residential or commercial mortgage markets, although some invest in both RMBS and CMBS.
While mREIT returns have fluctuated widely over the past five years, their high dividend yield during that same period has remained steady. That’s a key reason why 50% of the financial advisors who recommend the use of REITs also recommend mREITs as a simple, transparent, and liquid way to invest in the mortgage market and commercial real estate debt.
The RMBS market is highly tied to the housing market. With the housing market still stagnant over higher interest rates, new mortgage originations remain at historic lows. However, higher home prices keep the dollar amount of new mortgages elevated, somewhat offsetting fewer transactions through 2024.
The CMBS market is tied to commercial real estate which has seen more of a rebound than the residential market. CMBS issuances are up in 2024 after declines in 2022 and 2023. However, CMBS delinquencies were also at record highs due to struggles in the office and multifamily markets.
mREITs had a dividend yield of 12.65% at the end of 2024 compared to 3.96% for equity REITs. mREITs paid a cumulative $5.9 billion in dividends by the third quarter of 2024. mREITs struggled in 2024 from a total return perspective, finishing the year with an annual return of 0.36% as interest rates remained high and property market transactions were low.
1 million: mREITs play an important role in single family home financing. Nareit estimated that mREITs helped finance 1 million homes in the U.S. in 2024.
167%: Commercial mortgage-backed securities (CMBS) issuance more than doubled in 2024 from $40.6 billion in 2023 to $108.2 billion in 2024, according to Trepp.
47: In 2024, Experian estimated 47 cities in the U.S. had average mortgage balances over $1 million, up from 26 cities in 2024.
Sector Spotlight
- Constituents: 33
- One-Year Return: 10.24%
- Three-Year Return: -3.04%
- Five-Year Return: -4.08%
- Dividend Yield: 12.05%
- Market Cap: $55.53 billion
- Dividends Paid (2024Q3): $ 2.0 billion
Source: FTSE, Nareit T-Tracker® | As of Jan. 31, 2025
Below is a list of Nareit member companies from the mREIT sector.