Homebuilding stocks and exchange traded funds (ETFs) are in the doldrums as the housing market stagnates in record lows. High unemployment and even high lumber prices are pushing investors away from this area of the market. If the housing market were to turn around, several issues, such as the economy, interest rates and demand, would have to be completely in sync for a sustainable environment.
But not all real estate is cut from the same cloth. In fact, real estate investment trusts (REITs) might be an option to consider for your clients who are looking for income and some stability.
All About REITs
Even as the real estate market continues to get beat up and property values sink, REIT ETFs have pulled their weight in the markets over the last year, handily outperforming the S&P 500.
One way to explain this interesting phenomenon is that many REITs have boosted their balance sheets by raising money through secondary offerings and IPOs in 2009 and this year. REITs were also boosted with an upgrade from Fitch ratings from negative to stable. Industrial REITs were the only subsector to remain rated negative.
REITs are a way for investors to gain exposure to the housing and commercial real estate markets without actually having to own any property. REITs are holdings that accumulate money through initial public offerings, which is used to buy, develop, manage and sell assets in the real estate market.