REITs Trends After Fed’s Interest Rate Peak

Real Estate Investment Trusts (REITs) are a popular way to invest in real estate without buying property directly. But they can be sensitive to changes in interest rates. Let’s explore why and look at which REITs could be your best bet after the Federal Reserve rates peak.

Firstly, when the Fed raises interest rates, borrowing money becomes more expensive. This can hurt REITs because they often borrow money to buy or manage properties. Higher costs can mean less profit, which is why REITs might suffer when rates go up.

Graph 1: Historical Federal Reserve Rate Peaks with Identified Peaks 

However, there’s a silver lining for REITs when interest rates start to dip. Lower rates mean it’s cheaper for REITs to borrow money, which can lead to more profit. More importantly, as the rates paid by bonds begin to fall, REITs become even more attractive to investors. Their dividends, often higher than bond yields, shine brighter in the investment landscape, drawing more attention and capital to the sector. This increase in appeal can bolster REIT prices and provide investors with both income and growth potential.