Will REITs crash if interest rates rise? (2024)

Will REITs crash if interest rates rise?

As this chart shows, REITs perform poorly during periods of rising long-term interest rates, such as we are in right now. They perform even more poorly relative to non-REIT equities. But in the 12 months after long-term interest rates reach their peak, REITs have historically soared, outperforming non-REIT equities.

What happens to REITs when interest rates go up?

Rising interest rates hurt not only the value of REITs' property holdings but also the cost of debt to finance those properties or even refinance already-owned assets.

Why are REITs getting crushed?

Real estate investment trusts, or REITs, have generally not performed well recently, mainly due to the effects of rising interest rates.

Will REITs ever recover?

According to consensus forecasts from FactSet, the number will dip in 2023, drop further in 2024 and return to growth in 2025 and beyond before hitting $633mn for the 2027 calendar year.

Are REITs losing money?

Trusts focused on offices are the worst off. In 2023 through November, according to industry group Nareit, office REITs lost 14.7%; in 2022, they were down 38%.

Why not to invest in REITs?

Interest Rate Risk

The value of a REIT is based on the real estate market, so if interest rates increase and the demand for properties goes down as a result, it could lead to lower property values, negatively impacting the value of your investment.

Are REITs good to invest in now?

With rate cuts on the horizon, dividend yields for REITs may look more favorable than yields on fixed-income securities and money market accounts. However, REIT stocks are only as good as the properties they own — and some real estate sectors may be better positioned than others.

Do REITs go down in a recession?

REITs historically perform well during and after recessions | Pensions & Investments.

Are REITs at risk?

REITs closely follow the overall real estate market and are subject to much of the same risks, including fluctuations in property value, leasing occupancy, and geographic demand. Real estate is typically very sensitive to changes in interest rates, which can affect property values and occupancy demand.

What I wish I knew before investing in REITs?

A lot of REIT investors focus too way much on the dividend yield. They think that a high dividend yield implies that a REIT is cheap and a good investment opportunity. In reality, it is often the opposite, and the dividend does not say much, if anything, about the valuation of a REIT.

Will REITs do well in 2024?

A favorable job market seems encouraging. Robust demand for certain real estate categories, such as that for data centers and need-based asset categories, is likely to keep the momentum going for REITs in 2024.

Will REITs perform well in 2024?

In case inflation is brought under control, there is a good chance for bond yields to move lower in 2024, making quality real estate investment trusts (REITs) the top investment choices right now. Here are two high-yield REITs you can consider buying to benefit from outsized gains over time.

How are REITs expected to perform in 2024?

With healthy property fundamentals and a favorable interest rate environment, REIT fund managers expect the sector to deliver double digit returns this year.

What happens to REITs when interest rates fall?

Give us cheap REITs (real estate investment trusts) because they are likely to rise as rates fall. Yes, that's what happens in a recession. Investors flood into fixed income. Interest rates fall, and REITs—which tend to move opposite rates—rise.

Will REIT bounce back?

In fact, REIT total returns bounced back with impressive performance in the last quarter of 2023. Based on historical experience, the convergence of the wide valuation gap between public and private real estate will likely ensure continued REIT outperformance into 2024.

What is bad income for REITs?

This is known as the geographic market test. Section 856 (d)(2) (C) excludes impermissible tenant service income (ITSI) from the definition of rent from real property, making it “bad income” for the 75% and 95% REIT gross income tests.

What is wrong with REITs?

In most cases, REITs utilize a combination of debt and equity to purchase a property. As such, they are more sensitive than other asset classes to changes in interest rates., particularly those that use variable rate debt. When interest rates rise, REITs share prices can be prone to volatility.

How do you get out of a REIT?

Since most non-traded REITs are illiquid, there are often restrictions to redeeming and selling shares. While a REIT is still open to public investors, investors may be able to sell their shares back to the REIT. However, this sale usually comes at a discount; leaving only about 70% to 95% of the original value.

Are REITs more risky than stocks?

REITs have outperformed stocks on 20-to-50-year horizons. Most REITs are less volatile than the S&P 500, with some only half as volatile as the market at large.

What are the top 5 largest REIT?

Are REITs a stable investment?

Performance-wise, REITs offer attractive risk-adjusted returns and stable cash flow. Also, a real estate presence can be good for a portfolio because it provides diversification and dividend-based income—and the dividends are often higher than you can achieve with other investments.

What is the life of a REIT?

There is no set lifetime for the trust in most cases. Investors who buy publicly traded shares in a REIT can usually buy as much or little as they like and dispose of the shares when they want or need to.

Are REITs safe during inflation?

He says: “Our analysis shows REITs perform very well historically in periods of high inflation. I could easily see global REIT returns in the low double-digits over the next 12 months – and if the economic situation turns out to be more positive it could be considerably more than that.”

What is the future outlook for REITs?

REITs Could Offer Investment Opportunities in 2024

Looking to 2024 and beyond, it's clear that potential total return outperformance, attractive pricing with converging valuations, and solid balance sheets likely will increase the appeal of REITs and offer investors tactical and strategic investment opportunities.

What is the outlook for REITs?

REIT Market Outlook and Forecast

The REIT market is projected to see 2.6% year-over-year growth in 2023. The REIT market is forecast to grow at a CAGR of 2.8% from 2022 to 2027.