Resource Logo

Hello, you are using an old browser that's unsafe and no longer supported. Please consider updating your browser to a newer version, or downloading a modern browser.

Receive Updates
Resource Arrow Back to all
Date: November 20, 2017
Category: Real Estate

Real Estate’s Reaction to Rising Interest Rates [Video]

Created with Sketch. Run Time: 1:58
Portfolio Manager Resource Real Estate Diversified Income Fund
During the last prolonged interest rate increase, from 2004 to 2006, REIT stocks outperformed equities.
Share:

As the economy improves, the Federal Reserve continues to normalize interest rates. This may feel new to investors who have navigated declining rates for the last 30 years. So, what’s the next step? After a period of uncertainty, markets have started pricing in these increases, so investors must adapt.

Bond and equity markets typically face obstacles as rates rise. Real estate, however, has the potential to perform well in this environment. During the last prolonged interest rate increase, from 2004 to 2006, REIT stocks outperformed equities. Real estate also held its own against fixed-income assets, like U.S. Treasuries and corporate bonds, during periods of rising rates.

Why is this? Let’s look at apartments as an example. In a growing economy, potential buyers have more capital, but may shy away from buying because of higher mortgage rates. As these potential buyers become renters, vacancy rates may fall, and rents may increase. These rents have the potential to generate income for investors.

As rates begin to rise, real estate may suffer from short-term shocks, but the downturn is typically brief, if rates are climbing with a growing economy. That’s because real estate starts trading on positive real estate fundamentals, instead of interest rate reactions. And today, those fundamentals are strong. Supply growth remains mainly moderate, rent growth remains positive, and vacancy rates remain low.

The outlook for real estate is promising, even as we start navigating today’s rising interest rates.

 
This information is educational in nature and does not constitute a financial promotion, investment advice, or an inducement or incitement to participate in any product, offering or investment. It is not intended to be used as a tool to determine your specific financial situation, tax status, investment objectives, investment experience, suitability for any specific investment, risk tolerance or investment profile. Resource is not adopting, making a recommendation for or endorsing any investment strategy or particular security.

Receive Updates

* These fields are required.

Emails and white papers can only be sent to financial advisors in Resource’s broker-dealer partnership network.

Resource is the marketing name for Resource Real Estate, LLC, Resource Alternative Advisor, LLC, and their affiliates.

All statements and information other than statements of historical fact included on this website regarding strategy, future operations, financial position, estimated revenues, projected costs, prospects, plans and objectives of management are forward-looking statements. When used on this website, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. You should not place undue influence on these forward-looking statements. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make on this website are reasonable, we can give no assurance that these plans, intentions or expectations will be achieved because of the number of risks and uncertainties, many of which are beyond our control, including but not limited to uncertainties concerning the properties being operated and sold or refinanced, leverage and meeting debt service obligations, operating properties in different locations throughout the U.S., general, market or business conditions and changes in laws or regulations. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.