Troglodyte said:
I like the apartment REITs (especially the ones in the Sunbelt).
If interest rates go down, cap rates should go down, so valuation up. If inflation remains, real estate tends to be a good hedge for inflation.
The US is having a large supply of apartments coming online now through 2025. However, new apartments starts have fallen off a cliff. I can see a tough operating period for the next 12-18 months. However, demographics and trends toward renters vs owners seem to favor apartments at a time when supply should be minimal.
The problem is, apartment people think we are loading up for the next big "buying opportunity". Because all they know is that the FED drops rates, saves the day, and everything roars upward for the next 10 years. They fail to understand that the FED has never been in a position like this one, not even the 70's and 80's, where all sectors of debt are higher than ever, federal debt as above WW2 levels, and rates are merely at historical averages. The backdrop for "rescuing the economy and banks" by dropping rates is just not there, not without causing an absolute catastrophe first. I'd be very careful with apartments. Stay with the biggest names who have the greatest concentration of high quality real estate in good markets with low leverage. Everyone else is in for some pain.
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