Bimini Capital Management, Inc. (BMNM)

[alexander77]

Another bullish article, in the know that the 10 year treasury yield increased 4bpps to 2,75%:

"REITs and the (Potential) Impact of Rising Rates

Posted 11.18.13 From Brian Haskin | 0 Comments


REITs and the (Potential) Impact of Rising RatesWe all know that bond prices will fall when interest rates begin to rise, but what we don’t know is what will happen to other income oriented assets such as REITs. History provides us with some insights, but there really is not a clear picture that fits neatly with today’s scenario. What we do know is that rising interest rates can be a good sign, and are typically a result of one of the following:
Strengthening economy
Increasing levels of inflation
Some combination of both of the above

It is generally agreed that increasing levels of inflation would drive real asset prices higher, including real estate prices, which would benefit REITs. A strengthening economy means that property rental prices and occupancy rates should go higher, also a positive for REITs. A combination of the two, with only modest increases in inflation, is generally very health as property prices increase, rental prices increase and occupancy rates increase.

Real Estate Professionals Point to Past Data

According to Cohen & Steers, property valuations have increased in the past four cycles of monetary tightening and periods of rising Treasury yields (see page 5 of their report “What History Tells Us About REITs, Inflation and Rising Rates“). However, as noted in the InvestmentNews article linked below (see Read Full Story link below), just the mention of a potential pull back in the Quantitative Easing program by the Federal Reserve sent REIT prices tumbling. “Tapering concerns helped push REITs down 13.5% from May 22 to June 26,” noted the article’s author, Janet Levaux.

This then brings up one question that looms large, and is really difficult to measure: How much of the current REIT valuations are driven by the incredible hunt for yield that has occurred over the past several years? While all the historical statistics can be examined, there is really very little data that would represent a time period such as the one we are in today: artificially low (near zero) interest rates, slow growth economy, massive government stimulus on a global basis, significant government debts (globally), negative real returns on cash, and very low levels of inflation. Hence, one needs to take a step back from the data and take pieces of what has occurred in the past, then piece those together to develop a plausible scenario, or series of scenarios for what will happen to REITs if and when interest rates rise.

No Clear Answer

Wesley Gray of Empiritrage concludes in his blog post titled “Do REITs blow up if interest rates spike?” on the blog Turnkey Analyst that it just isn’t clear what will happen. The evidence just isn’t clear. He goes into far greater detail in his full report, and shows how the correlation of REITs to the 10-year bond have changed over time, and also analyzes the impact of changes in both nominal rates and real rates on equity REITs and mortgage REITs.

We are clearly in unchartered territory when it comes to looking at today’s economy, and thus have to be careful about drawing conclusions from past data. It is true that an improving economy should be good for real estate, and will likely lead to higher interest rates. The balancing of these two is tricky however, especially when current real estate valuations have been pushed higher not because the economy has been improving dramatically, but because of inexpensive financing and the dire need for income on part of so many investors."

http://dailyalts.com/news/reits-impact-rising-rates/


Posted by Brian Haskin

Brian Haskin is the Founder, Publisher and Editor of DailyAlts and also serves as the CEO of Alternative Strategy Partners. Brian has more than twenty years of experience in the asset management industry, having worked globally for leading firms such as Barclays Global Investors (now BlackRock), Deutsche Bank, Wilshire Associates and Analytic Investors. Brian brings his passion and acumen for alternative investments, product development and business strategy to the implementation and ongoing development of the DailyAlts.com platform and its content.

--> IMO real estate valuations will only increase further because nobody is going to sell his house for a lower price than he currently bought, especially knowing that unemployment numbers keep dropping.
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