Hey, did you hear? Interest rates are going up.
You know what that means: We should sell our real estate investment trusts (REITs).
Well, that's what Wall Street would like you to believe during periods of rising interest rates.
After all, REITs borrow a lot of money, so their borrowing costs will go up, their cash flows will shrink, and they might have to cut their dividends. Higher rates mean more competition from fixed-income investments. That urges investors to sell their REITs, then take that cash to go buy bonds, thus dragging REIT prices lower.
I mean, the Federal Reserve began raising rates in June 2004, going from 1.25% to 5.25% by summer 2006. That's a massive increase in just two years and had to have been horrible for REITs.