Brad also shared with me the results of his recent research in yield spreads and REIT returns that is very bullish for long-term returns for real estate investment trusts. He found that there the relationship between the spread between REITs and the 10-year Treasury yields is highly predictive of how REITs perform over the next five years. The higher the spread better REITs performed. He told me that right now the spread is pretty high and is predicting a five-year average annual total return of over 14%.

He shared his data with me, and the relationship is pretty solid. The spread relationship showed that it was a fantastic time to be a buyer of REITS in 2003 and 2008 when some of the highest reading ever were recorded. The yield spread went negative in the first six months of 2006 and as we all know that was a terrible time to be a buyer of anything. Spreads were also at very low levels in 1999 preceding a period of very low REIT returns and returned to bullish levels after the internet crash was delivered five years of outstanding average annual returns.

In a recent article on the NAREIT website Brad summarized the relations between Treasury and REIT yields, writing: “When Equity REIT yield spreads were negative, as they were in 1997 and again around 2006, forward-looking Equity REIT total returns tended to be disappointing: positive on average, but by only 2.68%. When yield spreads were higher, though, forward-looking total returns tended to be higher as well: in fact, when yield spreads averaged 2.0% or more, returns over the next four years averaged an amazing 21.13% per year.”

I am not as unabashedly bullish as Brad Case, but neither am I rushing to sell the majority of my REITs and real estate securities. Most of the bankers I have talked with in recent months are quite happy with the CRE and multifamily markets in their service areas and don’t see any imminent signs of collapse. Occupancy rates are decent, and in the vast majority of US markets, there are no signs of the dramatic overbuilding and excessive risk-taking that usually proceeds a serious setback. If we get a decent stock market pullback anytime soon, I will become a serious buyer of some of the REITs on my shopping list.

As for the Christmas holiday that starts Saturday when we head out to so the shipping for food wine and liquor for the Christmas Eve Open House. MY wife turns several shades of several different colors when she sees how much I spend on this bash every year, but it is a long running Melvin tradition. We open the doors to friends and neighbors and every year we meet some new neighbors that pop in for a few minutes or a long evening. At some point there will be singing, mainly Christmas carols but I have vague memories of my sons belting out a few badly off-key choruses of Sweet Child of Mine around midnight or so. It is a fantastic time and one of my favorite holiday traditions.