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How reit index funds performance was effected by mortgage crisis
REIT index funds are one investment choice among many, but with the recession and mortgage crisis of the last few years how have these funds been performing? The mortgage crisis has had many negative effects on the economy and the lending process, because many lenders require much tougher verifications and higher credit scores to qualify for home loans currently. How has the mortgage crises affected REIT index funds though? Sub-prime mortgage defaults and a downturn in the housing market have had an impact on real estate investment trusts in more than one way. In the last two years most REIT returns have been lowered significantly. Before the economic and housing downturn these trusts were very popular, and this was partly due to the booming housing market and the high returns that were offered.
Investor confidence in REIT index funds have also plummeted in the last couple of years, and a number of investors took losses when the mortgage crisis first hit. Sub prime mortgage defaults have increased by a large number, and analysts predict that more defaults and foreclosures will follow until the housing market picks back up again in a substantial way. REIT index funds which hold residential mortgage debt have suffered the most, because a large percentage of defaults and foreclosures occur on residential mortgages. These funds have seen their performance greatly impacted, and many investors have seen capital losses because of this. The mortgage crisis has had a negative effect on most REIT index fund performances.
The tightening of the lending standards are another factor that will affect the performance of REIT index funds. These stricter requirements have been put into place on both residential and commercial mortgages, and this has had the effect of making capital much harder to get from the lenders. The liquidity of the mortgage market has also decreased substantially. In a lot of areas the number of foreclosed homes is so high that these are rented out instead, and this causes an overabundant supply of rental units in the area which drives the rental prices down, decreasing the returns seen by some REIT index funds.
The effects seen from the mortgage crisis also spills over into other areas, not just REITs which invest in residential properties. The economic downturn behind the mortgage crisis also caused a big decreases in employment and consumer spending, as well as economic growth. REIT index funds which invest in retail, office, industrial, and commercial mortgages are also affected, and they have also seen lower returns because of the slowdown in the economy and the mortgage crisis. Because these funds have seen very poor performance in the last few years many investors have stayed away from them. That does not mean that REIT index funds can not be a good choice for investment capital, but each possible fund should be completely researched and evaluated before a final decision is made. This will keep the investor from choosing funds that may not fit well with their investment strategies or their acceptable risk levels.
The information supplied in this article is not to be considered as medical advice and is for educational purposes only.
|Hedge Funds Investment4 Jun 2010|