Real estate ETFs have been on a tear lately, with two funds pocketing 100% year over year. What investors need to know is whether the rally in real estate ETFs still has some steam.
Gary Gordon of ETF Expert doesn’t think so. He expects REIT ETFs “to take a major hit between now and the end of the summer.”
He reasons that:
- Markets are forward looking by 6-9 months.
- Mortgage rates are set to go higher.
- $1.5 billion in commercial loans will be due between 2011-2014.
- All this will make refinancing very difficult and will be reflected in market prices before 2011.
Contrast that with embattled former Federal Reserve Chairman Alan Greenspan, who told ABC’s Jake Tapper that the commercial real estate bubble has already popped, citing the fact that prices are down about 50%.
Instead, he recommends investing in SPDR Select Utilites (NYSE: XLU). He cites that its yield 0.59% higher than either Vanguard REIT (NYSE: VNQ) or iShares Dow Jones Real Estate (NYSE: IYR) (these two funds gained 100% year-over-year) and claims that fundamentally, the utility sector is a bargain relative to the REIT sector.
Vanguard REIT (NYSE: VNQ)
iShares DJ Real Estate (NYSE: IYR)
Sumin Kim contributed to this article.