“The catalyst behind the Fed’s decision to raise rates is the gradually improving economy,” he tells GlobeSt.com. “That means earnings are increasing, companies are hiring new employees and consumers are shopping.” It also means, he says, that REITs will be flourishing as well.
Mahn also notes that REITs have done well during periods when the Fed has gradually raised interest rates—or rather, to be precise, when it has raised the Federal Funds Target Rate. Between 2004 and 2006, for example, the Fed raised the Federal Funds Target Rate on 17 different occasions in 25-basis point increments. During that same time period, US publicly traded REITs, as measured by the Wilshire REIT Index, experienced an average annual total return of 27.7%, he says.
“REITs and REIT investors should be okay, provided the interest rates rise gradually,” he says.
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