While it’s true that real estate exchange traded funds (ETFs) have doubled off their lows since last March, they’ve still got a long way to go before the sector can be considered “stable.”
At the very least, real estate’s comeback from the lows is impressive. Investors had priced in total financial ruin that never materialized. But now the market may have gone too far in the other direction; there are concerns that it has “overshot” and calls for a strong recovery are way too hopeful at this point. Worse yet, if a double-dip recession strikes, real estate stocks could be among the hardest-hit, says John Spence for MarketWatch. [Homebuilder ETFs Quietly Surge.]
Market watchers are in particular wondering if commercial real estate is the other shoe about to drop. Fundamentally, the sector is facing declining rents, occupancies and property values, which is in its favor. Add a weak economy, high unemployment and the possible rise of interest rates, and it’s no wonder the outlook is so bleak.
REIT funds may be able to tap into raising equity and debt and the strongest companies may be able to get salvation from investors who have deep pockets, benefiting them once the economy solidly recovers. [Real Estate ETFs: Trouble Ahead?]
It’s impossible to say who’s right here. Fundamentally, a case has been made for continued weakness; on the other hand, the real estate sector could surprise us. If you’re waiting for an opportunity, a simple strategy we use is following the 200-day moving average to determine entry and exit. [How to Follow Trends.]