"The Vanguard Real Estate Index Fund ETF Shares (NYSEARCA:VNQ) has struggled badly. Over the past five years, the fund gained just 2.6% while the S&P 500 surged 85%, a gap wide enough to make investors question whether real estate deserves a place in their portfolios. The culprit: the Federal Reserve's aggressive rate hiking campaign beginning in March 2022 sent REITs into a prolonged downturn."
"The Fed cut rates in December 2025 and Goldman Sachs Research expects two more cuts in 2026, bringing the fed funds rate down to 3% to 3.25% from the current 3.75% to 4%. That matters enormously for real estate. Lower rates make debt cheaper, which is the lifeblood of property acquisitions and development. They push down Treasury yields, making VNQ's nearly 4% dividend yield more attractive on a relative basis. And they reduce the cap rates at which properties trade, boosting valuations across the sector."
VNQ lagged the broader market over the past five years, returning 2.6% while the S&P 500 rose about 85%. Aggressive Fed rate hikes beginning in March 2022 raised borrowing costs, compressed cap rates, pressured property valuations, and made Treasury yields competitive with REIT payouts, driving a prolonged downturn. A Fed rate cut in December 2025 and projected additional easing toward a 3.0–3.25% fed funds rate in 2026 would lower financing costs, push down Treasury yields, enhance VNQ's relative dividend appeal, compress cap rates, and potentially lift valuations and investor demand for real estate.
Read at 24/7 Wall St.
Unable to calculate read time
Collection
[
|
...
]