An adage among real estate investors basically says that you cannot build any more land. While you can always build higher, you still need the land. One of the best assets that most investors are underweighted on is real estate. Those who own a home are technically real estate investors, but home ownership does not produce any income, unless you have rental homes, which can be very capital intensive, not to mention time-consuming.
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The inflation conditions this year are the worst since the early 1980s, and there is no reason to expect things will improve any time soon. In fact, according to the National Federation of Independent Business, about 40% of U.S. small businesses intend to raise prices by 10% or more this year. Add in spiraling food and gasoline prices, and the picture for the rest of 2022 looks increasingly grim.
Many investors are concerned that real estate investment trusts (REITs) will get hit hard in a rising interest rate environment, which has begun in earnest as the Federal Reserve raised the federal funds rate by 50 basis points, and similar or even bigger hikes are expected in June and July, as well as the rest of the year.
The reality is REITs have performed well. In a recent publication, the National Association of Real Estate Investment Trusts had this to say:
Historically, REITs have performed well during periods of rising long-term interest rates with average four-quarter return in periods with rising rates of 16.55% compared to 10.68% in non-rising rate periods from the first quarter of 1992 to the fourth quarter of 2021. Additionally, REITs outperformed the S&P 500 in half of the periods when Treasury yields were rising. The positive association that has historically been observed between periods of rising rates and REIT returns is consistent with an improvement in the underlying fundamentals.
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