5/18/2007: REITS are Down 15% from their High
Equity markets continue to march forward in May. The S&P 500 has already risen 2.9% in May, lifting the year-to-date return to 8.1%. One asset class that has missed out on the recent run is REITS. They have plunged 6.3% in May. This is in stark contrast to how they started the year. The bidding war for Equity Office Properties helped push REITS 13% higher for the year through February 7. (See our 2/15/2007 commentary.) However, REITS began selling off immediately thereafter and were punished especially hard during the global market downturn from February 27 through March 5. Since March 5, they have fallen further. Through May 18, REITS are now down 3.8% year-to-date. That/s a 15.2% decline from their peak. It's interesting that REITS have fallen on such hard times while equities continue to shine. One explanation is higher interest rates. As a yield play, REITS are sensitive to interest rates. In May, the 10-year bond yield has risen from 4.63% to 4.80%.