4 Best REIT Stocks For 2017

Donald Trump’s election has set off an unprecedented rally in both stocks and bond yields. Trump’s promises of introducing strong fiscal stimulus measures have pushed yields higher since Nov 8. Given such expectations as well as an imminent rate hike, rate dependent sectors such as REITs have suffered losses.

However, losses for the category have been relatively limited considering the surge in bond yields. There is sufficient reason to believe that both property prices and rent income will rise in the near future, also as a result of Trump’s policies. Investing in carefully selected REIT stocks may be a prudent option for investors after all.

Limited Losses for REITs

Since Trump’s victory was announced on Nov 8, the yield on 10-year U.S. Treasury notes has increased from 1.88% to nearly 2.40%. This in turn has led mortgage and other market rates even higher. However, the S&P 500 REIT industry group has lost only 3% during the same period, defying the expectations of most market watchers and analysts.

One estimate had put the consequent decline in REIT prices at 10%. However, the inherent strength in REIT stocks is indicative of the fact that investors expect the sector to benefit from a Trump presidency. A relatively softer fall for the category implies that growth prospects are bright and credit spreads are likely to narrow in the near future.

Is a Resurgence in REITs Plausible?

The reason behind the rise in bond yields is the belief that Trump will push through strong fiscal measures. To be more specific, the new administration is expected to reduce taxes and boost spending on infrastructure. This in turn will result in higher growth, an increase in interest rates and consequently, higher inflation. These factors are expected to push up bond yields.

However, higher growth and inflation will also lead to a rise in real estate prices and rents which will beneficial for REITs. Additionally, Trump has promised to ease regulations on financial services which will lead to looser credit standards for those seeking mortgage loans. This will push up the demand for homes, leading to higher home prices.

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