U.S. real estate investment trusts (REITs) could be experiencing their biggest decline in almost a decade, which could be affecting REIT-related exchange traded funds (ETFs). One of the main culprits behind the potential drop is higher borrowing costs that curb takeovers and reduce property values.
Every year from 2000 to 2006, REIT stocks have outperformed the S&P 500 index, but now it seems that is going to go in the opposite direction. The stocks could drop as much as 20% during the next year, report Dan Levy and Hui-yong Yu for Bloomberg. Property trusts that own office buildings, apartment buildings, hotels and shopping centers are losing value as banks and investors shut down bonds and loans backed by subprime and commercial mortgages. Some of the REIT-based ETFs that could be affected and their year-to-date performance include:
- Dow Jones Wilshire REIT ETF (RWR) – down 6.2%
- First Trust S&P REIT (FRI) – up 0.1% for the last three months, having launched in May
- Vanguard REIT Index ETF (VNQ) – down 5.6%
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.