Fears of a REIT Bubble Grow
Real estate stocks surged by 7% in January. And they've vaulted a giant 38.2% on the MSCI index since the end of 2013. But as a broad array of economic indicators improve and real estate markets sizzle, economists are beginning to talk about the overvaluation of real estate investment trusts.
Stern Agee analyst Carter Worth told Reuters that, "It's overdone. At a minimum, risk-reward is not favourable. You have the potential for limited upside and plenty of downside." His brokerage firm recently highlighted 80 stocks that were ripe for shorting, and 37 of them were REITs. And a look at historical market trends stokes anxiety. Worth says that whenever an asset class trades at 14% or more than its 150-day moving average on the MSCI index, a correction invariably occurs. And the REIT index is currently 15% above its average, which could help explain a 2.9% fall over the past five trading days.