Are REITs Due for a Correction?
Investors in recent years have fallen hard for real estate investment trusts. And as they continue to wow the markets, the bubble question will inevitably arise. Bloomberg's look at two crucial REIT gauges suggests that the sector may be due for a correction.
Last month, the S&P's REIT index outperformed analysts' expectations for the first time since May 2013. Following that performance, the gauge fell 13% below the S&P 500 standard for three straight months. Bear in mind that REITs have enjoyed a 164% return to the S&P 500's 102% over the past five years to understand how dramatic a reversal that is. That dip was the last time the REIT index suffered a dip of 10% or more, an impressively long stint of good health that can't go on interrupted.
In another suggestion of froth, 76 of the 172 REITs on the Russell 3000 Index are trading above economists' forecasts. And the index's success has been pinned in part on low interest rates, which the Fed will likely raise as early as this June.