Why REITs will likely surge in 2024?
As we dive into 2024, the Fed's accommodative approach to tackling inflation is likely to provide an impetus to the REIT sector, which depends highly on the debt market to carry out business activities. These companies benefit from lower borrowing costs. Moreover, low interest rates contribute to higher valuations.
According to expert panelists at the recent Nareit REITworld annual conference, 2024 could be a year of opportunity for Real Estate Investment Trusts (REITs). They added a note of caution, however, that there are still headwinds affecting investor perspectives on REITs and capital markets in general.
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.
After lagging equities the past two years, REITs offer an attractive investment opportunity in 2024. The headwind of higher bond yields and central bank rate hikes is likely to abate and may turn into a tailwind if our view about an impending economic slowdown and decelerating inflation trends is correct.
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.
A favorable job market seems encouraging. Robust demand for certain real estate categories, such as that for data centers and need-based asset categories, is likely to keep the momentum going for REITs in 2024.
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.
Given the prevailing headwinds, CBRE expects RevPAR growth of just 3.0% in 2024, supported by a 40-basis-point increase in occupancy and a 2.3% increase in ADR. Urban hotels are expected to outperform in 2024, while airport hotels will benefit from the increase in inbound international travelers.
Is it a good time to get into REITs?
With rate cuts on the horizon, many publicly traded REITs have rebounded, and the industry as a whole seems well-poised for a recovery in the coming year. Ultimately, the decision on whether or not to buy REITs will depend on the specific circ*mstances and risk tolerance of each investor.
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.
The market is currently set to shift from a very difficult environment for mortgage REITs to potentially a great period for the sector. If the Fed embarks on the rate cutting cycle it has signaled, these could be great investments over the next several years.
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.
All else being equal, higher interest rates tend to decrease the value of properties and increase REIT borrowing costs.
Are REITs Good Investments? Investing in REITs is a great way to diversify your portfolio outside of traditional stocks and bonds and can be attractive for their strong dividends and long-term capital appreciation.
Stocks and bonds deliver positive returns and cash underperforms both as the Fed pivots to rate cuts. Stocks and bonds may both be poised for success in 2024. Easing inflation and a pivoting Fed should reduce headwinds that have faced both asset classes in recent years.
REIT Stock Performance and the Interest Rate Environment
Market interest rates typically increase during periods when macroeconomic conditions are strengthening, the same strengthening that often drives positive REIT investment performance.
REITs tend to be popular among income investors because they're required to distribute at least 90 percent of their taxable income as dividends to shareholders. So, for investors, there are two ways to make money from REITs: Appreciation when the REIT's share price goes up and regular quarterly dividend payouts.
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.
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.
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.
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.
Reasons to Sell a Home Before a Recession
If you want to get the highest price for your home, aim to sell the home at a time of economic exuberance. On the other hand, during a recession consumers become defensive and are not as willing to pay as much for everything including a home like yours.
According to Yahoo Finance, bidding wars are still very much a thing in 2024, with some houses receiving upwards of 30 offers. So it's completely understandable if you're starting to wonder if bidding wars are the new normal, and are just something buyers will have to deal with forever at this point.
