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5 Reasons Why REIT ETFs Are Surging

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REIT ETFs have been rallying hard lately with most funds hovering around a 52-week high level.  Vanguard Real Estate Index Fund ETF Shares (VNQ - Free Report) ) added about 24.1% this year compared with 16.1% gains in the SPDR S&P 500 ETF (SPY - Free Report) .

While low rates caused by the dovish Fed and fears for the delta variant of Covid-19 have been keeping the rates low and boosting the rate-sensitive sectors, some industry-specific factors have also been fueling the upside in REIT ETFs.

Below we highlight a few factors that have been helping the sector.

Rising Inflation

The current economic backdrop is promising for an inflation comeback. Consumer Price Index (CPI) in the United States increased to 270.98 points in June from 268.55 points in May of 2021. The cost of living in the United States has surged the most in 13 years. In a rising inflation environment, real estate stocks act as a good bet. Both, resale value of the property and rental income, rise with price inflation (read: Consumer Price Sees Biggest Jump in 13 Years: ETFs to Gain).

Uptick in Home Prices is a Boon for Renters

The U.S. homebuilding sector is on fire. Thanks to extremely low mortgage rates, home sales are upbeat. But higher demand for home buying as well as lack of labor and land has boosted home prices. This is a great scenario for renters.

Along with some analysts, we too believe that fast-rising home prices are likely to keep prospective homebuyers away from the ownership and direct them toward the rental market. “Homeownership is still dead in this country because the only people that are buying homes right now are people that have equity, great credit and a job,” multi-family housing investor Grant Cardone told Yahoo Finance, quoted on an article.

Still Shaky Job Market = High Demand for Rent from Low-Income Group

The job market is still far from steady. In June, the unemployment rate rose to 5.9% versus the 5.6% estimate. The coronavirus fears are still in fine fettle. This means demand for real estates for rent purpose is likely to remain strong from middle-income or low-income consumers (read: 5 Sector ETFs to Play Robust June Jobs Data).

Booming Cloud Business and Rollout of 5G

A stupendous tech rally has been aiding the data center REITs in recent times. Data center REITs own and manage facilities that aid customers to safely store data. These REITs provide continued power supplies, air-cooled chillers and physical security.

Meanwhile, cell-tower REITs area has been a beneficiary of the rapid rollout of 5G. Investors should note that increased consumption of mobile data has been boosting this space.

Real Estates Are Lucrative Amid a Low-Yield Environment

If these are not enough, a general low-rate environment is great for real estate stocks and ETFs as these are high-yielding in nature. The benchmark U.S. 10-year treasury yield was 1.38% on Jul 1. Against such a low-yield backdrop, dividends offered by real estate ETFs are quite sturdy.

ETFs in Focus

Some of the decent real estate ETF plays that offer superb yields are Invesco KBW Premium Yield Equity REIT ETF (KBWY - Free Report) (yields 7.06% annually), Global X SuperDividend REIT ETF (SRET - Free Report) (yields 6.48% annually), VanEck Vectors Mortgage REIT Income ETF (MORT - Free Report) (yields 6.77% annually) and iShares Mortgage Real Estate ETF (REM - Free Report) (yields 6.0%).

On the other hand, Pacer Benchmark Industrial Real Estate ETF (INDS), Ppty U.S. Diversified Real Estate ETF (PPTY - Free Report) , S&P REIT Index (FRI - Free Report) and Dow Jones REIT ETF SPDR (RWR - Free Report) are some of the funds that have been hovering around a 52-week high currently.