Post-Panic REITs: Most Attractive Valuations in Decades

Includes: FNIO, RWR, VNQ
by: J.D. Steinhilber

Well-publicized real estate and credit market woes caused investors to stampede out of real estate securities during the financial panic. Despite a strong performance in December, U.S. REITs declined 38% in the fourth quarter of 2008, versus a 22% drop in the S&P 500.

Like global equities generally, real estate securities are now valued at their most attractive levels in decades. At the end of November, the yield on U.S. REIT indexes exceeded the 10% level for the first time since 1991, and the spread to the 10-year Treasury yield reached 7.25%, the highest since 1974.

At the end of December, the yield on U.S. REIT indexes was 8.8% and the spread to the 10-Year Treasury was 6.5%. Investors who have been underweight in this asset class may want to consider adding exposure to U.S. and foreign real estate ETFs.

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U.S. REIT Index Performance Past 10 Years

Foreign Real Estate Index Performance Past 3 Years