2024-05-02 23:01:57 ET
Summary
- Since real estate typically generates a steady (and growing) yield, there has historically been a playbook that REIT prices should trade down when rates are rising, and vice versa.
- The degree to which REITs should move with rates is up for debate, as well as the ideal time to buy REITs while rates are rising.
- Recent economic data has pushed back the timing of the first rate cut by the Federal Reserve (‘Fed’), and investors are coming around to the reality of higher rates.
- Our research suggests that investors that have been brave enough to buy REITs when the rate outlook was at its worst have been handsomely rewarded.
- Though we cannot predict the peak of interest rates for this cycle, we believe that REITs are on the cusp of a multi-year bull market driven by better-than-expected economic growth, muted new construction, competitive advantages, and the stabilization (and potential decline!) of interest rates.
Unfortunately for REIT investors, REIT prices have yet to decouple from movements in long term interest rates – and rates are rising again in 2024 as of April 30. Because real estate typically generates a steady (and growing) yield, there has historically been a playbook that REIT prices should trade down when rates are rising, and vice versa. We have spoken about this numerous times, debunking the theory based on interest rate movements in the 1990’s and 2000’s; however, since 2010, it has clearly worked over short term periods....
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An Interesting Time To Invest In REITs