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REITs Rally on Interest Rate Relief

July 18, 2018

REITs Rally on Interest Rate Relief

July 10, 2018 | Calvin Schnure | Nareit

REITs extended their rally in June, with the FTSE Nareit All Equity REIT index posting a total return of 4.2 percent. This was the fourth consecutive monthly gain for the sector, and recent increases put REIT total returns into positive territory for the year.

REITs have outperformed the S&P 500 in recent months, with a cumulative total return of 14.6 percent since their low point in early February, more than double the 6.2 percent increase for the S&P 500 over this period. This represents a turnaround from last year and early 2018, when REITs had lagged the broader market.

Interest rates have exerted a heavy influence on share prices of REITs for the past few years, especially with the Fed’s interest rate increases in the spotlight. The impact of rising rates was pronounced in the second half of last year, as REITs declined while the broader market rose. The performance gap between total returns on REITs and on the S&P 500 corresponded closely to the increases in long-term interest rates.

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