REITs are in the midst of another leg lower and have effectively wiped out their gains from May and July with a 9% decline over the past six weeks. Year to date, the sector is down by 7% while it was up as much as 9% at its highest point in the year as measured by the Vanguard Real Estate ETF. This follows even steeper, double-digit losses in 2022.

In recent months, the weakness of the long-end of the Treasury curve has hit all types of yield-generating assets like REITs and dividend-paying stocks. Fed fund futures markets are downgrading the chances of rate cuts in 2024 while extending the duration that rates will remain at these levels. There is even increased chatter about how the Fed’s terminal rate must even go higher in order to truly stamp out inflation.

It’s a double-edged sword for REITs as the bulk of the sector continues to deliver impressive financial results with defaults remaining low especially in areas with strong fundamentals like healthcare and industrials. Yet, the stocks are unlikely to rally as long as rates remain elevated at these levels even despite attractive yields.

Finsum: REITs are in the midst of another leg lower and falling to new annual lows due to an uptick in inflationary pressures and the Fed coming out more hawkish than expected.