REIT stocks are slightly down YTD. On the bright side, yields are at their highest level in decades, defaults have not materially risen and occupancy rates have been stable. However, this has not been substantial enough to offset the headwind from rising rates.

This headwind is only getting more potent with yields on longer-term Treasuries breaking out to new highs which is bearish for the asset class given its embedded leverage and exposure to rates. Higher rates also are impacting demand and leading to lower affordability. 

The most damage is evident in commercial real estate, where REITs are trading close to their lows while REITs with exposure to healthcare, industrial, or residential sectors are performing much better. This is mostly a reflection of a structural change following the pandemic as companies cut back on office space. 

In the event that rates remain at these lofty levels, REIT stocks are likely to underperform. However, the current weakness in the sector could present a long-term opportunity to accumulate REITs that continue to grow their earnings and use the weakness in the sector to add high-quality holdings at attractive prices.

Finsum: REITs are moving lower as Treasury yields break out to new highs. While higher yields are a major headwind, the current selloff is likely to create some attractive opportunities.