The Real Deal Chicago

Fed’s vow to keep rates in check a boon for REITS

Real estate stocks have rallied after a big dip in 2018
March 04, 2019 02:30PM

Chair of the Federal Reserve Jerome Powell (Credit: Getty Images and iStock)

It’s not just borrowers who are benefiting from the Federal Reserve’s decision to hold off on interest rate hikes so far this year. Real estate investment trusts have seen their shares soar thanks to the Fed’s shift in tone.

Real estate stocks on the S&P 500 have jumped 12 percent since the start of the year, after falling 5.6 percent in 2018, according to the Wall Street Journal.

Last year’s rising rates cut into home sales and reduced the relative appeal of REITs’ relatively high dividend payments. With the Fed holding off on more hikes for now, investors are flocking to REIT shares. With rates in check, the payouts on government bonds are falling, pushing investors to stocks such as REITs that potentially bring higher yields.

“The surprising drop in yields and the drop in mortgage rates could potentially be another positive for housing and housing-related stocks going forward,” Ryan Detrick, senior market strategist at LPL Financial, told the Journal.

The Fed in December raised rates for the fourth time in 2018, citing a strengthening labor market and strong economic activity. That pushed rates to their highest level since 2008 amid many indicators the housing market is slowing down.

A month later, Fed officials vowed to be “patient” with future cuts, leading some to believe an increase is off the table until at least June. [WSJ]John O’Brien