For years, REITs were considered a safe investment and less volatile than other stocks. During the bull run in recent years when REIT valuations rose considerably, the sector became prone to wider swings in stock prices. Today, however, the New York Times has a piece illustrating that declines in the REIT sector are now less than the broader market. REIT stocks are way down from their 52-week and all-time peaks. But what the experts in this story are arguing is that within the stock universe, REIT stocks--namely self-storage and apartment companies--may represent a safer bet than other sectors.
But the analysts offered another simple answer as well: safety. “They want to hide there right now,” Louis W. Taylor, a managing director at Deutsche Bank Securities, said of investors' mind-set.
REITs — publicly traded companies that disburse most of their income as dividends — are often considered a good portfolio diversifier, and a haven in turbulent times, because they typically have a “low correlation” with broader markets. In other words, REITs might rise as the overall stock market declines, as happened in the third quarter, or not fall as precipitously.
But investors also see the problems in the housing and mortgage markets, which helped prompt the recent burnout on Wall Street, as particularly beneficial for self-storage and apartment companies, analysts say.
“A lot of households are really concerned about the future of housing prices and mortgage interest rates, so they're going to wait it out and rent,” said Brad Case, the vice president for research and industry information at the REIT trade association, “and while they're renting, they need a place to store their extra stuff.”