I was one of the biggest real estate bears on the planet in the mid-2000s. And boy did that sector crater during 2008’s housing bust, explains Mike Larson, editor of Safe Money Report.
But that was then. Circumstances are completely different now. Rock-bottom interest rates, runaway asset inflation, soaring residential rents, and the scramble for yield among investors ignited the sector.
Let me answer begin with a chart showing the year-to-date performance of the 11 S&P 500 (SPX) sectors along with the index itself. As you can see, the S&P 500 is up almost 17% in 2021. Not bad at all.
Source: Yardeni Research, Inc.
But the real estate sector is trouncing the S&P! It’s up more than 27%...and counting. That’s second only to energy in the 2021 performance race.
Things get more interesting when you delve deeper into the numbers. Office and lodging REITs have lagged thanks to the well-publicized impact of Covid-19 on work and travel trends. Just look at the glut of unused/underused office space thanks to the pandemic...and how long it’s taken for hotel occupancy and room rates to climb back to normal.
But many residential REITs, industrial REITs, and specialized REITs have been going gangbusters. Why?
Homeownership has gotten so expensive that many Americans are being forced to rent instead. Increased online shopping activity led to a surge in demand for warehouses and other storage and fulfillment spaces for retailers. Demand for specialized properties to grow cannabis, park recreational vehicles (RVs), and store boats, among other things, has strengthened.
Meanwhile, interest rates are going nowhere fast. That’s continuing to fuel a manic search for yield among institutional and individual investors alike.
Guess who delivers it? REITs! The Real Estate Select Sector SPDR Fund (XLRE) sports an indicated yield of 3.4%, far outpacing the 1.4% yield of the SPDR S&P 500 ETF (SPY).
Bottom line? I doubt this run of outperformance is over. That’s why.
Safe Money Report focuses on these kinds of stocks, which include names in the consumer staples, food and beverage, retail, and healthcare sectors. Visit Safe Money Report here.
