Real estate has been the awkward cousin at the family reunion-present but forgotten, whispering, “Remember me? I used to throw killer parties.” The Vanguard Real Estate ETF (VNQ) limped through the past decade with a 77% total return, while the Vanguard S&P 500 ETF (VOO) sashayed ahead with a 290% return. Noted.
But let’s not blame the REITs. They’re not slacking-they’re just stuck in 2015, wearing last year’s fashion trends while the S&P 500 struts in like it owns the place. The problem? Two things: megacap tech stocks, which have turned into financial influencers with 10 million followers, and interest rates, which have been playing a cruel game of emotional whack-a-mole.
Why interest rates are REITs’ exes we can’t stop texting
REITs are the lovebirds of the stock market-they thrive on borrowed money. But when rates rise, borrowing becomes a chore, not a thrill. Here’s the breakdown, in case you’ve been living under a rock (which, honestly, might be cheaper these days):
- Debt gets expensive: Higher rates are like a bad date who charges you for every coffee. Suddenly, financing that shiny new apartment complex feels less glamorous.
- Property values take a hit: Commercial real estate values are now doing the Macarena-down, down, can’t get up. Why? Because rising rates make future rent look less appealing than a Netflix password shared with your sister.
- Investors flee: When bonds start offering more excitement than your dating app, why not just stick with Treasuries? REITs get left holding the metaphorical baby formula.
The plot twist: Rates might finally lower their standards
The Federal Reserve, that bureaucratic ice queen, has finally listened to the universe’s most annoying jingle-lower rates. Chairman Jerome Powell’s Jackson Hole speech was the equivalent of saying, “Okay, fine, you win this time.” And if rates descend from their soapbox, REITs might just remember how to dance again.
Think of it this way: If rising rates are a toxic ex, falling rates are the therapist who says, “You deserve better.” Borrowing becomes affordable, property values regain their sparkle, and investors start treating REITs like the cool kid at the back of the class. Plot twist: You root for the underdog.
So here we are, staring at VNQ like it’s a half-eaten slice of pizza-questioning our choices, but still hungry. Maybe it’s the ex who’s actually good for you. Or maybe I’m just really bad at relationships. 🤷♀️
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2025-08-23 15:23