These 146 REITs Have Big Upside From Here

&l;p&g;&l;img class=&q;dam-image shutterstock size-large wp-image-530311765&q; src=&q;https://specials-images.forbesimg.com/dam/imageserve/530311765/960x0.jpg?fit=scale&q; data-height=&q;730&q; data-width=&q;960&q;&g; Shutterstock

It&a;rsquo;s a good time to be a virtual landlord. REIT (real estate investment trust) dividends just got a tax break, their stock prices are kicking off a rally &l;i&g;and&l;/i&g; their yields are &l;i&g;still&l;/i&g; on the generous side.

Let&a;rsquo;s start with those yields, because that&a;rsquo;s why we buy REITs. These firms get a pass from Uncle Sam if they dish most of their profits to us investors as dividends. (This generosity, by the way, has helped REITs outperform the broader stock market for much of their history.)

Current yields are higher than usual today and generally, this means that REIT prices are too &l;i&g;low&l;/i&g; (and should be bought).

We&a;rsquo;re talking REITs today because the current rally appears to have legs. Two weeks &l;i&g;before&l;/i&g; the major bottom, &l;a href=&q;https://contrarianoutlook.com/these-4-reits-will-thrive-as-rates-rise/&q; target=&q;_blank&q;&g;I told readers to buy REITs&l;/a&g;. My reasoning was simple: REITs would soon &a;ldquo;decouple&a;rdquo; from the long bond. On January 25 I wrote:

&l;/p&g;&l;blockquote&g;&l;i&g;In the short run, the &a;ldquo;rates up, REITs down&a;rdquo; theory puts on quite the show. When the 10-Year Treasury&a;rsquo;s yield rises, REITs usually fall. And when its yield drops, REITs usually rally. This inverse relationship tends to hold up over multiple days, weeks and even months.&l;/i&g; &l;i&g;However the &a;ldquo;long view&a;rdquo; shows that many of these short-term moves are merely noise. It is possible for REITs and higher rates to coexist in profitable harmony&l;/i&g;&l;/blockquote&g;

Over the previous 25 months, REITs &l;i&g;had&l;/i&g; indeed moved down whenever rates moved up (and vice versa).

Then, a funny thing happened. REIT prices indeed &a;ldquo;decoupled&a;rdquo; from long-term rates (on February 8 to be specific). Their stocks started to rally while the long bond chopped sideways.

As regular readers know, I&a;rsquo;m a bit of a &a;ldquo;REIT addict.&a;rdquo; I constantly comb the sector for timely deals, looking for big yields and bargains. I like to watch the movers and shakers &a;ndash; the stocks heading up as well as down.

Earlier in the year, out of the 257 or so REITs I follow, only five had stocks in uptrends. &l;i&g;Five&l;/i&g; out of &l;i&g;257&l;/i&g; moving higher!

Today, I count 146 with positive momentum. What changed? The &a;ldquo;first-level&a;rdquo; investors &a;ndash; those who buy and sell on headlines and cheesy maxims &a;ndash; began to realize that REITs can (and often do) move higher in the face of rising interest rates.

Also Mr. Market began to express doubt in Mr. Jerome Powell&a;rsquo;s view of the financial world. While Fed Chair Powell says he needs to hike rates another 0.5% &l;i&g;this&l;/i&g; year, the &a;ldquo;long end&a;rdquo; of the rate curve &a;ndash; set by the free market &a;ndash; appears to be saying &a;ldquo;enough already.&a;rdquo; The 10-year Treasury sits exactly where it did five months ago, and that&a;rsquo;s been enough to kickoff a party for our favorite one-click landlords.

Disclosure: none

Home prices are high. What could cool them down?

The housing market may be starting to benefit from the one thing that can loosen a long-running squeeze that has crimped sales and driven up prices: more homes.

The nation��s housing inventory increased 12.2 percent�in the second quarter, the biggest gain since early 2015, according to real estate research firm Trulia. Housing supplies were still down 5.3 percent�from a year ago, a dynamic that has continued to push up prices.

But that��s less than the double-digit annual declines that had prevailed since the second quarter of 2017 and the smallest drop since early 2017.

Thirty of the nation��s 100 largest metro areas saw their housing supplies increase on an annual basis last quarter. That��s up from just 13 early in the year and represents the largest share of big cities with rising inventories in more than three years.

��It could be the start of a shift in inventory,�� says Trulia data analyst Alexandra Lee, though she added it��s too early to tell for sure.

More: These 15 counties are most exposed to China's tariffs. Is yours on the list?

More: 3 reasons IRAs have edge over 401(k)s when it's time to tap your nest egg

More: Quick, make an offer! 5 cities where homes sold the fastest �� and the 5 slowest

She attributed the increase to an acceleration in new home construction as well as the willingness of more existing homeowners to put their houses on the market. Some, she says, want to benefit from big price gains on the assumption that housing prices may be peaking. And baby boomers who have stayed in their homes while delaying retirement may be hanging it up in greater numbers.

The Nashville, Tennessee, area led the nation in the second quarter with a 52 percent jump in homes on the market compared with�a year earlier, Trulia figures show. The median home price of $255,000 is still up 11.3 percent�annually, according to Zillow, an online real estate database firm.

But, ��there has been some more inventory,�� says John McClanahan, a broker for Village Real Estate in Nashville. As a result, he says:���Prices have been really stable the last few months. Things are a little slower. You��re not seeing as many multiple offers. There��s not as much of a frenzy.��

McClanahan cited a flurry of new home construction, with builders tearing down older single-family houses and putting up two new units on the same lot to reap a sufficient profit as land prices soar in the economically vibrant area. The units are being snapped up by millennial first-time homebuyers as well as retiring baby boomers who are downsizing, he says.

Other top metro areas with big inventory gains the past year include Salt Lake City (48.6 percent), Dallas (32.4 percent), Washington, D.C. (21.9 percent), and Little Rock, Arkansas�(13.4 percent), according to the Trulia data.

Meanwhile, home supplies also rose in six of the nation��s 10 most unaffordable cities where housing costs make up 42 percent�or more of monthly income, Trulia says. Inventory increased 1.1 percent�in New York City, 2.9 percent�in Los Angeles, 3.1 percent�in Miami and 22.1 percent�in San Diego. The gains could help moderate price increases in the months and years ahead if they're�sustained, Lee says.

CLOSE

The first permitted 3D-printed home debuted at SXSW in Austin and it has the ability to change the global housing crisis. Buzz60's Sean Dowling has more. Buzz60

�

�

�