May REIT Returns Story of Uncertainty

Uncertainty in the broader U.S. economy led to a down month for REITs in May, according to Brad Case, NAREIT's senior vice president of research and industry information.

In a video interview with REIT.com, Case dissected the industry's performance in May. He noted that despite the drop, REITs still outpaced the broader markets for the month. The FTSE NAREIT All REIT Total Return Index fell 3.95 percent in May, while the S&P 500, Dow Jones Industrials, Russell 2000 and NASDAQ all dropped between 6 percent and 7.19 percent for the month. For the year so far, REITs are up roughly 6 percent, also besting the broader markets.

"It was a bad month for investors all around. I would say that what we're looking at is continued uncertainty about the pace and the strength of the expansion," Case said. "It's more a story of uncertainty than of purely bad news."

One bright spot among REITs was the residential mortgage sector. Home financing REITs jumped approximately 2 percent for the month. Investors are responding to "several different signs that the worst of the housing slump is behind us," according to Case.

"This month, we had some good news about housing starts. We had some good news about housing prices," he said. "It's giving investors a little bit more confidence in the returns of home mortgage REITs going forward, and they have a strong dividend yield as well."

Retail REITs were up more than 11 percent through the first five months of May. Case said that could continue through the remainder of the year, although it is highly dependent on the broader economy.

"Consumer spending has held up surprisingly well during the downturn and during the early stages of the recovery," Case said. "If we continue to get signals that the economy is going to expand, maybe not consistent signals from month to month and across all economic indicators, but if there continues to be news that convinces investors that the economic recovery is still on track, then you can expect to continue to see retail spending remain strong and retail REITs produce strong returns."