It Might be Time to Move Into REIT ETFs

Real estate stocks and the corresponding exchange traded funds struggle somewhat last year against the backdrop of rising interest rates, but with expectations rising that the Federal Reserve may not be able to raise rates this year, rate-sensitive asset classes have some momentum.

ETF investors can also track the broader REITs space with options like the Vanguard REIT ETF (NYSEArca: VNQ), which includes a 16.9% tilt toward residential REITs. Expectations for higher interest rates usually drag on REITs as the dividend-yielding equity asset look less attractive relative to safer government bonds in a rising rate environment.

While the Federal Reserve is moving toward interest rate normalization, the Fed has reassured markets that it will make gradual hikes.

However, real estate investment firms argue that values do not have much further to fall and are less vulnerable to the threat of rising rates than many would believe, pointing to positive signals like job growth and rising inflation ahead, which would help offset any weakness from a higher interest rate, reports Henny Sender for the Financial Times.

Other analysts have also dismissed claims that there is a bubble in the real estate space where prices have been rising, contending that the higher prices reflect the dearth in supply.