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Economists expected equity REITs to benefit greatly from real estate's separation from the financials sector to get its own market index category. And while the split in September did afford real estate more exposure and result in the greatest inflow of capital ever for real estate-related ETFs that month, that excess stalled in October as investors turned to bonds.
Then came November's political shock which exacerbated the trend as the Federal Reserve moved interest rates higher in anticipation of future economic stimulus and inflation under President-elect Donald Trump's administration.
Higher rates mean higher borrowing costs, with is a well-known negative for REITs that rely heavily on debt for growth. And the Fed's move in December has spiked a bond selloff, raising 10-year government bond yields and making REIT yields even less attractive, Bloomberg reports. The short-term decline in REIT stock prices has also resulted in a drop in their long-term gains.
On a positive note, real estate fundamentals remain strong heading into 2017 and REITs have raised 9% more capital in 2016 than the previous year. [Bloomberg]
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