Why I am interested in interest rates and REITs is that we have been in a long period of interest rate decline. Since interest rates are at an all-time low, we have to expect at some point they will go up. The problem is I think no one really knows when this will happen. What I want to know is what effect potential future raise in interest rates will have on my REITs.
Unfortunately for us Canadians, a lot of information on REITs is American. However, basic principles in their REITs and ours would have to be the same. There is an article in Investopedia about interest rates and REITs. This paper concludes that there is a strong inverse relationship between REIT prices and Interest Rates.
There is also a paper from Altegris that talks about how REITs have behaved in the past when interest rates have gone up. They looked at REITs since 1972 and conclude an increase in Fed interest rates will not necessarily cause a fall in REIT stock prices. There are a number of other facts involved.
So it would appear that interest rate changes might only affect REIT stock prices. One good thing about REITs is that a lot of money made in REITs is from their Distributions. I have two. In one some 40% of my total return is from Distributions and in the other some 55% of my total return is from distributions.
The last thing to mention is that we have gone from historically high interest rates to historically low interest rates. A few years back people were saying that interest rates have a bottom of 0%. They were saying that negative interest rates could not happen. Yet, here we are with negative interest rates. Here is an Market Watch article about negative interest rates. As far as I know this has never happened before.
On my other blog I am today writing about RioCan Real Estate (TSX-REI.UN, OTC-RIOCF) ... continue...
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