REITs make disappointing start to 2024 as markets remain apprehensive about rate cuts

REITs had a disappointing start to the year as markets remained apprehensive about the chance of a rate cut.

The FTSE Nareit All Equity REITs index fell 1.59% in the week ended Jan. 5, while Dow Jones Equity All REIT Total Return Index was down 1.57%.

Equity REITs underperformed the broader markets, with S&P 500 declining by 1.52% comparatively. Meanwhile, the real estate index, Real Estate Select Sector SPDR ETF (NYSEARCA:XLRE), fell by 1.92% and mortgage REITs decreased by 2.15% from last week.

XLRE especially tanked amid a growing skepticism about the chance of near-term rate cuts. For instance, at the end of 2023, futures were fully pricing in a Federal Reserve rate cut by March, but now it has dialed back to an 85% probability, Deutsche Bank’s Jim Reid said.

Notably, mortgage rates increased slightly for the first time since October 2023, according to the Freddie Mac Primary Mortgage Survey. Also, mortgage demand dipped by 10.7% this week, Mortgage Bankers Association said.

Medical Properties Trust (MPW) was the most notable loser among REITs, with the stock trading at its lowest level since 2009 on Friday late morning as the health care REIT said it had taken steps to recover uncollected rents from troubled tenant Steward Health Care System.

Office REIT Peakstone Realty Trust (PKST) was another major laggard for the week.

Among the subsectors, Speciality subsector saw the biggest decline, of 3.82%. Health Care fell by 2.75%.

On the contrary, Hotel REITs were major outliers, having gained by 1.39% on a weekly basis.

Here is a look at the subsector performance: