Research - DECEMBER 6, 2018

REITs return 4.7% in November

by Loretta Clodfelter

REITs bounced back in November, according to the FTSE Nareit Equity REITs Index, which showed a 4.74 percent total return. That was a turnaround from October’s 2.97 percent decline. Year to date, the index is up 3.93 percent.

REITs outperformed the broader market, as measured by the S&P 500 Index, which returned 1.79 percent in November.

REIT investors, who often display sensitivity to interest rate movements, may have been encouraged by the comments of Jerome Powell, chairman of the Federal Reserve, at the end of the month. In a speech at the Economic Club of New York on Nov. 28, he stated, “Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy — that is, neither speeding up nor slowing down growth.”

Powell’s characterization of interest rates as “just below” neutral appeared to be a reversal from his attitude at the beginning of October, when he said interest rates were “a long way” from neutral. Those comments may have tipped off a broad market selloff that pushed the S&P 500 Index into negative-for-the-year territory.

While many industry watchers continue to expect another increase in the target federal funds rate at the Federal Open Market Committee meeting later this month, the pace of additional increases in 2019 may not be as aggressive as some had feared.

The best-performing property sectors in November were healthcare, up 8.28 percent, and apartments, up 7.73 percent. Single-family home REITs were the only sector with a negative return in November, down 1.34 percent. Healthcare REITs are having a strong year, with a total return of 14.99 percent year to date. But the best-performing category in the first 11 months of 2018 is free-standing retail, with a total return of 16.85 percent. The weakest performer this year is the timber sector, down 18.97 percent year-to-date.

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