Is the Inflation Nightmare Nearing An End For REITs?

What: Last Tuesday, the July Producer Price Index came in at 0.1%, below the expected increase of 0.2%. Then on Wednesday, the July Consumer Price Index (CPI) met the forecasts of a 0.2% increase month-over-month. The year-over-year consumer price increase of 2.9% was the lowest reading since 2021.

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Why: Although the y-o-y number is still far from the FED's target goal of 2%, with the labor force weakening, the FED is likely to lower interest rates when it meets in September. Whether that cut will be 25 or 50 basis points is now the subject of much debate.

Inflation has been a nightmare for consumers since 2021 and a harsh dose of reality for many REIT investors. Although the effect of higher interest rates has not been as terrible for REITs as Wall Street had predicted, about 70% of all REITs are still trading below their share price at the start of 2022.

The chart below shows well-known and popular REITs from many different sub-sectors and their prices on January 1, 2022, versus August 14, 2024. All of them are down substantially from the start of 2022, although the loss percentages do not include dividends paid:

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Takeaway: 

The worst should now be over for REITs. Lower interest rates will help with refinancing existing loans and with new purchases. If inflation continues trending lower it will help keep residential and industrial property maintenance and insurance costs down. Hotels may see an increase in business and personal travel. Retail occupancy rates may stabilize and consumers will have more spendable income for shopping and experiential activities.

Wall Street has been anticipating lower PPI and CPI numbers and a FED rate cut for some time, so REITs have been strong gainers over the past month or two. Therefore, REIT performances were somewhat modest this week, even with the good index reports.

Some may feel it's too late to get into REITs now, that the best opportunities were a few months ago. But the table above helps keep things in perspective. Another thing to consider is that most REITs are paying out higher dividends today than they were at the start of 2022.

Sleep well, fellow REIT investors, your inflation nightmare may be nearing an end.

Better Yields Than Some REITs?

The current high-interest-rate environment has created an incredible opportunity for income-seeking investors to earn massive yields, but not through REITs.

Arrived Homes, the Jeff Bezos-backed investment platform has launched its Private Credit Fund, which provides access to a pool of short-term loans backed by residential real estate with a target 7% to 9% net annual yield paid to investors monthly. It paid 8.1% in July. The best part? Unlike other private credit funds, this one has a minimum investment of only $100. 

As long-term rates go down and short-term rates stay high, there’s a unique chance to invest in fix & flip loans before yields drop. Check out Benzinga's favorite high-yield offerings.