Normally, high interest rates make buying real estate a bad idea. However, according to one strategist, higher bond yields could lead to a drop in real estate stocks, which could mean a great opportunity for investors.
Since early February, the U.S. 10-year note has grown from a yield of 1.65% to 2.39%. The ETF (Exchange-Traded Fund) that tracks real estate (using the ticker symbol IYR) has dropped 8.7%.
Based on technical analysis of IYR, the future may hold more problems if rates continue to climb, according to Richard Ross, lead technical analyst at Evercore ISI. However, this could lead to a great opportunity to buy, once IYR reaches a good support level.
“When you’re talking REITs, you’re taking rates,” said Ross, “If you get one right, you have a pretty good shot at the second.”
While his description of IYR’s short-term chart is bleak, the long-term outlook for the primarily REIT ETF may be quite bright. He says to look at the 150-week moving average, that’s where the support was two years ago.
The current average is $69.88, close to 6% lower than it was when IYR opened on Friday. Ross says this likely coincides with upside in 10-year yields, 2.65% – 2.75% before the move is done.
[Featured image: “House Sold” by American Advisors Group, used under CC BY-SA / Slight color filters added, image slightly cropped]