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REITs and jobs report
Old 11-10-2015, 10:11 AM   #1
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REITs and jobs report

I was surprised that last week's positive jobs report hit REITs so hard with many down 5% to 10%. Ostensibly that drop is because people assume the jobs report will encourage the Fed to raise rates, in which case mortgage rates will also rise.

My surprise is because 1) I figured a rate increase had already been baked in, and 2) a positive jobs report suggests increasing demand for housing. As many of us saw during the '80s, housing demand can be strong despite mortgage rates approaching 20%. What other factors might explain the hit that REITs took recently?
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Old 11-10-2015, 10:34 AM   #2
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Just irrational fear of the frequency and magnitudes of subsequent rate hikes.

REITs recovering just a little today, but I anticipate they will be under pressure until the Fed makes its future intentions clearer. When that could be, have no idea.

Enjoy the dividends, in the meantime.
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Old 11-10-2015, 11:18 AM   #3
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My guess would be that if interest rates rise it will increase borrowing costs for reits. Maybe not immediately but soon enough. That means the cost of doing business costs more and starts to slow if only temporarily. Ultimately if the economy is doing well enough for a rate increase that should help offset increase costs of borrowing. I might be wrong, but that is my take.
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Old 11-10-2015, 11:38 AM   #4
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Most of the trading done each day is by robots which you would think takes some of the overreaction out of the market, but its actually been the opposite. Which is why we have flash crashes.

I think most of these robots are based on algorithms which are focused on momentum. So the robots are out there trying to front run each other and pile on to any market swing.

Anyway I wouldn't consider the wild swings to be an indicator of anything other than that the inmates are running the asylum.
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Old 11-10-2015, 11:48 AM   #5
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My reit is down, it turned into a dog. I bought a reit stock , it was paying about 14% dividend. I paid 7.65 a share, now it's 5.50 and they cut the dividend . Even with reivesting the dividends I'm losing money, . I deserve it , I vowed to never buy an individual stock after the dot com bust. I guess 15 years was enough time for the greed in me to resurface. A nice slap would maybe reinforce things for me.
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Old 11-11-2015, 05:55 AM   #6
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REITs are dependent on borrowing, and interest rate hikes and fears hit most of them.
Most REITs are not about housing and mortgages. They cover commercial properties, in general.
Long O and HTA.
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Old 11-11-2015, 08:26 AM   #7
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Each property is worth a monthly payment. If you have more going to interest, you have less for principal. Therefore, the property is worth less.

Think of Real Estate like a bond. Higher interest rates generally make them worth less. Of course, inflation makes them worth more and Deflation worth less. (and depreciation even less again, maybe...)
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Old 11-11-2015, 08:31 AM   #8
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Quote:
Originally Posted by ESRwannabe View Post
Anyway I wouldn't consider the wild swings to be an indicator of anything other than that the inmates are running the asylum.
Exactly!
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Old 11-11-2015, 08:37 AM   #9
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The drop of REITs looks overdue relative to other segments of the market. If you think they are mispriced, step up and buy.

But as I do not follow this market, I am not sure, hence have made no bid.
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Old 11-11-2015, 11:06 AM   #10
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I have been investing in the REIT "APTS" with the hope of taking advantage of millenial trends to rent instead of buy. It has done very well for me over the last year plus.
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Old 11-11-2015, 01:53 PM   #11
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I hold REIT funds as 5% of my equities allocation. I've noticed that REITs seem to be quite volatile relative to my other equity asset classes. This lets me rebalance frequently - trimming why high, and buying when beaten up.

Initially I decided to have a 5% exposure because I though of REITs as being a good inflation hedge. Inflation has been low, but REITs have still been a good diversifier.
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Old 11-14-2015, 09:39 PM   #12
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You assumed the rate was already baked in. It was only partially baked. The jobs report increased the likelihood of a December Fed increase.
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Old 11-19-2015, 08:25 PM   #13
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Forgive me if someone else mentioned it & I missed it, but I always assumed that 'part' of the reason REITS go down as interest rates go up, is because it creates investment competition. Most notably, certificates of deposit.

Correct me if I'm wrong

Also, to the person who mentioned he lost money investing in a REIT that was paying 14%.

I mean no disrespect, but I would never invest in anything with a dividend yield of 14.00%.

If it sounds too good to be true, it probably is.
I'm only invested in one real estate investment trust.
Realty Income Corporation (O)
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Old 11-19-2015, 10:38 PM   #14
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+1 for Realty Income.

O and its Preferred issue O-PF, together comprise the biggest holdings in my ROTH IRA.

This is truly a "sleep well at night " company.
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Old 11-21-2015, 02:18 PM   #15
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It is very hard if not possible to predict or time the Market. Similarly like REITs, bio pharmaceutical companies were hit hard on a few comments of drugs cost control from top politicians (sure it is needed yet any talk about it would cause huge market fluctuation). Those stocks did not recover fully since. I also noticed that there are a lot of foul play from "analysts" who advise to sell or buy, misleading stock owners to dispose of their investment ASAP at damping prices or purchase something what is barely a float. Next thing you know within a few months the price goes back to normal and people behind those manipulations make a big buck.
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