Eq: Real Estate

(New York)

Yields have almost never been lower. In some cases, they are at all-time lows. This has made income-oriented investments a real challenge. So how can investors get great yields right now? Well the first thing to bear in mind right now is that to get really juicy yields, one is going to have to take some risk. With that understood, take a look at mortgage REITs. Mortgage REITs took a huge hit when the pandemic began for fear of declining credit quality in the underlying mortgages. To-date they have only recovered somewhat. However, two of the biggest—Annaly (NLY) and AGNC Investment (AGNC)—are sporting yields of 13.5% and 10.6% respectively.


FINSUM: Mortgage REITs have obvious risks right now given ongoing unemployment, but with prices low and yields high, they look like they have a place in the portfolio.

(Miami)

May was a rough month for the housing market, new data shows. Much of the media narrative has been on the strength of the housing market of late, but the most recent data shows that home sales fell almost 10% in May. Further, home price growth decelerated from 4.6% to 4.5% in the same month. Some economists think home price growth figures are being artificially inflated by the total lack of homes for sale, with inventory very low.


FINSUM: It is hard to tell how healthy the housing market actually is. In one way, it does look healthy, but the lack of inventory and its relationship to prices reminds us when corporate bonds market seize up and there is so little inventory that prices stay “high” because of the lack of liquidity. This is an obvious exaggeration, but there could be some truth in it.

(New York)

It might seem a bit counterintuitive right now, but that may be exactly why it is a good bet. REITs have been beaten up pretty badly, and on the surface they seem likely to stay that way. Offices, retail, and other parts of the commercial real estate world look to remain weak, but Citi’s private bank thinks there is value in the sector. As to their role in a portfolio, Citi says REITs “are a way to play the U.S. economic recovery and global economic recovery without being too concentrated in the Microsofts of the world, and to add to portfolio yield on top of that while we wait for that recovery”. REITs are yielding about 7% on average and the market has been so beat up that they look underpriced relative to the value of their underlying assets.


FINSUM: The key here is either broad long-term exposure, or shorter tactical exposure to sectors that don’t look likely to be hurt (e.g. industrials, which benefit from growth in ecommerce).

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