Analyzing real estate is all about the cycles. Evaluating real estate investments, including real estate investment trusts (REIT), depends on evaluating three cycles: the economic cycle (primarily jobs), the building cycle, and the interest rate cycle.
We believe we are in a good spot in the economic cycle for attractive U.S. real estate returns, with steady job gains and an improving domestic economic growth outlook. The building cycle for real estate shows little sign of the type of overbuilding that has ended previous cycles. Finally, although we expect interest rates to rise, we expect increases to be modest, and for the increases to be driven by improving economic growth and a gradual pickup in inflation, conditions historically favorable for real estate stocks.
Based on these metrics, our real estate outlook is favorable, especially for income investors in the case of REITs. Below we discuss these cycles and what they mean for publicly-traded real estate in 2017.