Real Estate Stocks Are Done - Really?!?

In a recent clip from Saturday Night Live, the show features a news segment titled "Really!?! with Seth and Amy". The skit focuses on the recent law difficulties of Michael Vick (who has since been shown innocent). It's quite hilarious, and reminded me of a couple market related items.

Momentum, and its trading cousin trend-following, plays a large role in many of the strategies I follow. One example is the current performance of REIT stocks (with Friday being an obvious exception). Many pundits will go on TV and claim that an asset class (or stock) can't possibly go any higher (or lower, see 2000-2003 in stocks).

REALLY? How many times on the chart could you have said, REALLY?

Take a look at the chart for the Real Estate iShares ETF (IYR). How many times has the front page of a magazine or newspaper exclaimed that housing is dead and the real estate market is in a massive bubble, etc etc. ?

There is way too much talk of bubbles in general in my opinion. Ken Fisher says it best when he states "It's not a bubble if people are calling it a bubble."

On a somewhat variant note, billions of dollars have recently been allocated to equal weighted indexes. Are they coming on-line at the wrong time for investors? A look at the S&P 500 sorted by market cap decile reveals that the largest cap stocks are the cheapest by PE Ratio. . .

Comments

[David Jackson:]

<em>Take a look at the chart for the Real Estate iShares ETF (IYR). How many times has the front page of a magazine or newspaper exclaimed that housing is dead and the real estate market is in a massive bubble, etc etc. ?</em>

You've conflated commercial REITs with housing, but they're totally different animals. It's really important to differentiate between different types of "real estate stocks". There are homebuilders, realtor-related stocks, office REITs, mall REITs, and housing REITs. All display totally different characteristics.

The example you chose, IYR, is a broad-based REIT ETF dominated by commercial REITs, which have been on a tear due to the strength of the economy, rising office rents, low bond yields, and acquisitions in the office REIT sector (particularly the Blackstone buyout of Equity Office).

But even some people think they're topping out now, because their yields are at all-time lows. Look at the chart here:

Asset Class Yield Historical Comparisons 1/94-12/06

Full disclosure: I'm short some housing REITs.

2007 Feb 12 03:51 AM

[WorldBeta:]

Yah, I agree with your distinctions - I should have been more specific.

AI should take those historical yields back to the 1970s, data is available for all of the indices with the exception of emerging markets. . .

2007 Feb 12 01:17 PM