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Why higher rates could make real estate a buy

Real estate stocks slide

Higher interest rates usually mean bad news for real estate. But if the move higher in bond yields continues, a consequent drop in real estate stocks will offer an opportunity for traders, if one strategist is correct.

Since the start of February, the yield on the benchmark U.S. 10-year note has gone from 1.65 percent to 2.39 as of Friday's market open. During that time, the ETF tracking real estate companies (trading under the ticker symbol IYR) has fallen 8.7 percent.

Based on the IYR's technicals, there may be a little more trouble ahead for the ETF if rates continue higher, says said Richard Ross, head of technical analysis at Evercore ISI. However, that may then create a chance to buy when the IYR hits a major support level.

"When you're talking REITs, you're taking rates," he said. "If you get one right, you have a pretty good shot at the second."

Though Ross describes the IYR's short-term chart as "not pretty," he sees hope for the mostly-REIT ETF in its long-term chart.

"Focus on the 150-week moving average," he said. "That is where we found support back in 2013."

That average is currently at $69.88, nearly 6 percent below the IYR's opening price on Friday. "That probably coincides with upside in 10-year yields to 2.65, 2.75 [percent] before we're said and done on this move," said Ross. "I'm a buyer, just not here. You have another 4 or 5 percent downside."