Are REITs worth it in 2024?
April 2, 2024, at 2:50 p.m. Real estate investment trusts, or REITs, are a great way to invest in the real estate sector while diversifying your options. Real estate investments can be an excellent way to earn returns, generate cash flow, hedge against inflation and diversify an investment portfolio.
Key 2024 Outlook themes:
Normalization: extreme post-pandemic highs and lows in the property sectors will transition back to historical trend lines and offer more predictable outcomes. Debt in the spotlight: real estate credit strategies will remain in focus amid an elevated interest rate environment.
Summary. REITs have access to capital and are acquiring assets, making it a good time to invest. REITs historically rebound when interest rates pivot and have the potential for rent growth.
REIT 12 Months Forecast
Based on 31 Wall Street analysts offering 12 month price targets to REIT holdings in the last 3 months. The average price target is $28.05 with a high forecast of $31.48 and a low forecast of $24.01. The average price target represents a 13.04% change from the last price of $24.81.
How to Qualify as a REIT? To qualify as a REIT, a company must have the bulk of its assets and income connected to real estate investment and must distribute at least 90 percent of its taxable income to shareholders annually in the form of dividends.
Best Time to Sell Your House for a Higher Price
April, June, and July are the best months to sell your house in California. The median sale price of houses in June 2023, was $796,400, which is expected to grow more in 2024. However, cities like Arcadia and San Mateo follow an upward trend throughout the year.
Housing Market Forecast for 2024
“Hotter-than-expected inflation data and strong payroll numbers are likely to apply more upward pressure to mortgage rates this year than we'd previously forecast.” Despite ongoing affordability hurdles, Fannie Mae forecasts an increase in home sales transactions compared to last year.
The valuation divergence between REITs and private real estate will likely converge in 2024, making REITs an attractive option for investors. Solid balance sheets will enable REITs to navigate ongoing economic uncertainty while providing an advantage in terms of acquisitions and growth.
With healthy property fundamentals and a favorable interest rate environment, REIT fund managers expect the sector to deliver double digit returns this year.
The value of a REIT is based on the real estate market, so if interest rates increase and the demand for properties goes down as a result, it could lead to lower property values, negatively impacting the value of your investment.
What is a good amount to invest in REIT?
According to the National Association of Real Estate Investment Trusts (Nareit), non-traded REITs typically require a minimum investment of $1,000 to $2,500.
Because REITs use debt to purchase investments, rising interest rates could mean these companies would have to pay more interest on future loans. This could in turn reduce their return on investment. Because of this, REITs could potentially lose value when interest rates rise.
All else being equal, higher interest rates tend to decrease the value of properties and increase REIT borrowing costs.
REITs should generally be considered long-term investments
This is especially true if you're planning to invest in non-traded REITs since you won't be able to easily access your money until the REIT lists its shares on a public exchange or liquidates its assets. In many cases, this can take around 10 years to occur.
For purposes of the REIT income tests, a non-qualified hedge will produce income that is included in the denominator, but not the numerator. This is generally referred to as “bad” REIT income because it reduces the fraction and makes it more difficult to meet the tests.
REITs provide natural protection against inflation. Real estate rents and values tend to increase when prices do. This supports REIT dividend growth and provides a reliable stream of income even during inflationary periods.
Wall Street analysts' consensus estimates predict 3.6% earnings growth and 3.5% revenue growth for S&P 500 companies in the first quarter. Analysts project full-year S&P 500 earnings growth of 11.0% in 2024, but analysts are more optimistic about some market sectors than others.
The home-shopping season is expected to “follow a similar pattern” in 2024, meaning that June should be the best month to list a home, according to Zillow. That's largely due to the first in a series of mortgage rate cuts that's widely expected in June.
“Taken together, we expect headline CPI inflation to trend up modestly to 0.9% year-over-year on average in 2024, and core CPI inflation to reach 1.2%.”
Mortgage rates are expected to decline later this year as the U.S. economy weakens, inflation slows and the Federal Reserve cuts interest rates. The 30-year fixed mortgage rate is expected to fall to the mid- to low-6% range through the end of 2024, potentially dipping into high-5% territory by early 2025.
What would the world be like in 2024?
In 2024, geopolitical realignment will continue, eroding American and European influence and inspiring protectionism; natural resources are being used for blackmail, increasing the risk of economic warfare; and elections in Taiwan, the United States and elsewhere will prompt further economic uncertainty.
The bottom line. Interest rates could drop in the future, but you may not want to wait for that to happen to buy a home. If you wait for rates to fall, you could face higher home prices or miss out on your dream home.
Thus, between falling interest rates, the coming decline in new deliveries, and attractive relative valuations, REITs appear to be poised for a strong rally over the next few years.
Right now, REITs (VNQ) are at an inflection point and time is running out for investors. But now as we head into 2024, we expect the polar opposite and this should lead to an epic recovery across the REIT sector. The Fed expects at least 3 interest rate cuts in 2024 and the market is predicting even more.
In fact, REIT total returns bounced back with impressive performance in the last quarter of 2023. Based on historical experience, the convergence of the wide valuation gap between public and private real estate will likely ensure continued REIT outperformance into 2024.
