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If REITs Keep Selling Off, Scoop Up Some Shares

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February 11, 2015 – Comments (3) | RELATED TICKERS: VER , CTRE , CORR

I have noticed a potentially interesting buying opportunity in a sector of the market recently, REITs.  REITs have been taking a beating lately, likely as a result of fear that interest rates will begin to rise soon.  Last week's particularly strong monthly jobs report sparked the recent round of selling in REITs.  A strong jobs report in theory moves up the timetable for a Fed rate hike. The threat of rising rates usually weighs on yield instruments like REITs.

For years I have been of the opinion that the Fed will wait much longer to raise rates than anyone thinks. I have been right about that so far. I still think that those who believe that the Fed will begin raising rates in June are off-base. To me, the key number that the Janet Yellen and the Fed is focused on is wage growth. Wages have been growing at an extremely slow pace. While it's true that wage growth was robust in January, up five tenths of a percent, the largest monthly gain since June 2007, I strongly believe that number is misleading.

Wages weren't strong because of tightness in the labor market, they were higher because of minimum wage hikes in a number of states. According to the never-wrong Wikipedia, "from 2014 to 2015, nine states increased their minimum wage levels through automatic adjustments, while increases in 11 other states occurred through legislative or ballot changes."

If we treat the January average hourly wage increase as a legislated anomaly, we can see that average hourly wages dropped in December and that the year-on-year wage gain was only a paltry 2.2%, still well below the 3.0% or so that many in the Fed would like to see.

Even if I am wrong and the Federal Reserve does begin to slowly lift the Federal Funds rate, continued low interest rates and bond buying by the ECB will likely keep interest rates low in Europe for the foreseeable future, causing increased demand for and in turn lower yields from U.S. paper.

If the recent weak stock market performance of REITs continues I believe that it represents an interesting buying opportunity.  The statistics back that statement up.  Check out the following exceptional post by Ben Carlson on how REITs perform during periods of rising interest rates:

In four out of the six periods where rates went substantially higher, REITs were actually positive. And in three out of the four positive time frames they showed outstanding performance. 

I currently own several REITs that I will likely add to if they sell off significantly in the coming months on interest rate fears, including American Realty Capital Properties (ARCP), CareTrust (CTRE), CorEnergy Infrastructure Trust (CORR), Gramercy Property Trust (GPT) and NorthStar Realty Finance (NRF).

Jason 

3 Comments – Post Your Own

#1) On February 11, 2015 at 10:05 PM, colleran (56.36) wrote:

I have done well with RAS although it has lately followed the other REITS down. I think I will add more. Thanks for the idea.

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#2) On February 12, 2015 at 8:52 AM, TMFDeej (97.44) wrote:

You're very welcome colleran.  Thanks for reading.

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#3) On February 12, 2015 at 9:13 AM, StoneyTerp12 (< 20) wrote:

Jason,

Sorry for the thread drift, but I was curious what your current thoughts are on BCRH.  Still seems very cheap to me, and hopefully with the 4th quarter dividend upcoming that will start to hit the stock screeners, we might get the price pop I've been looking for.

Thanks in advance for your response.

Kevin

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