Investment Head Fakes can Take Years

Most REIT (Real Estate Investment Trust) investments were down quite a bit yesterday. They have been taking some significant hits since interest rates started creeping up a few weeks ago.

I have been getting a lot of questions regarding real estate over the last few weeks. The real estate market seemed to have a nice  recovery going at the end of 2012 and beginning of 2013. Now (as always) the future is looking uncertain.

Remember that real estate had a huge boom during the 2000 – 2010 decade. There was a big drop in 2008, but over the course of the decade returns in this asset class were huge.

Does this mean it will be followed by a bad decade? We don’t know for sure. But one thing to keep in mind is that, whatever happens, it won’t be straight up or down. We could easily have a decade of flat returns in real estate, but over the course of that decade there will be many shorter time periods where it seems like the market is either recovering or crashing again.

Think about the 2000 – 2010 market for US stocks. The market dropped a lot to the bottom in October 2002, then the market went up for about 5 years to 2007, then the market dropped steeply in 2008, then it came back steeply in 2009 to 2010. The end result — returns for the US total market were roughly flat for the decade.

Something similar to this could happen for real estate. That is, returns could drop for several years or seem to be on the up and up for several years, with the end result being nothing to talk about.

One last thing – please don’t assume I am saying you should be out of REIT’s. The future of all investment classes is impossible to predict.  The solution? You own them all.