What happened

AGNC Investment (AGNC -1.25%) posted a strong month of November, as the stock price for the mortgage real estate investment trust (REIT) was up 21.5% for the month, according to S&P Global Market Intelligence. The stock is down about 34% year to date as of Dec. 7.

AGNC Investment outperformed the major indexes over the month, as the Dow Jones Industrial Average jumped 5.7% in November, the S&P 500 was up 5.4%, and the Nasdaq Composite climbed 4.4%.

So what

As a mortgage REIT, AGNC Investment buys up mortgages and generates revenue on the interest earned. It has been a difficult year for the housing market in 2022, but November proved to be a bright spot.

One of the key drivers was a reduction in mortgage rates. After surging to over 7% in October and early November, the highest level since 2006, they gradually started to trend lower. The move was spurred by the October Consumer Price Index, which grew by 7.7% year over year, but was lower than the previous month, indicating that inflation might have peaked.

Over the next few weeks, mortgage rates fell, and as of Dec. 7, the 30-year fixed rate dropped to 6.41% -- 73 basis points lower than its recent peak.

Mortgage applications and refinancings are still down year over year, largely because rates are still some 3 percentage points higher now than they were a year ago. But at least things are moving in the right direction.

AGNC Investment also jumped, as did the rest of the market, when Fed chairman Jerome Powell said on Nov. 30 that the Fed would be looking to slow the pace of rate hikes. The market saw this as good news for generating more activity in the housing market. 

Now what

But the reality is that conditions in the housing market are not expected to materially improve until late 2023 or early 2024, depending on several factors. Interest rates will keep rising until inflation nears the Fed's target range, inventory remains tight, prices are still relatively high (although starting to decline), and the potential for a recession or an economic slowdown is looming.

For AGNC Investment, spreads between agency mortgage-backed securities and Treasury bonds have widened considerably, and its book value has dropped. But the low valuation of agency mortgage-backed securities, which CEO Peter Federico said are "as attractive as they have been in AGNC's nearly 15-year history," presents opportunities for higher returns in AGNC's portfolio when the market bounces back.

Also, AGNC is an excellent dividend stock. It has a monthly payout of $0.12 a share, at a yield of 14.8% -- which is extremely high, but down from 18% in October. The REIT has had to cut its dividend twice since 2019, but it remains a good option for dividend investors.