As interest rates rise, investors are questioning whether they’d be better off parking their money in bonds than real estate investment trusts.
Last week, the Federal Reserve announced that it would raise interest rates by a quarter percentage point. Following this news, S&P 500 real estate stocks fell 1.2 percent last week and are down 4.3 percent for the year — the worst performance of any S&P sector, the Wall Street Journal reported.
The Fed plans to increase rates two more times this year, bringing rates to between 3.25 and 3.5 percent by the end of 2020. REITs thrive when interest rates are low: Real estate stocks in the S&P 500 saw a 7.2 percent increase in 2017. Following Wednesday’s news, the yield on 10-year U.S. government bonds momentarily rose above 3 percent.
“We’re at the point where interest rates are starting to actively compete with high dividend yielding stocks for investors’ dollars,” Steven Violin, senior vice president and portfolio manager at F.L. Putnam Investment Management Company, told the Journal.