Pending home sales were up again last month for a sixth month in a row. The housing market has been a significant drag on the economy and may be one of the root causes of the crises of the last two years, so good news continues to be very welcome.When you consider this week's pending home sales numbers in combination with the recent uptick in housing price indexes there seems to be reason for optimism. Homebuilding stocks are also up significantly since the bottom earlier this year and real estate in general seems like it may be turning into a profitable asset class again.
Is it time to be investing in real estate again and are REITs a potential opportunity? A REIT is a Real Estate Investment Trust that invests in property and then essentially sells shares in that trust to individuals and institutions. The profits are then often distributed to the shareholders as dividends.
A publicly listed REIT trades like a stock and REIT dividend yields usually lead the market. REITs are so popular that there are even ETFs that invest across a pool of them to provide additional diversification for investors looking for some exposure to that asset class.
For example, the Dow Jones U.S. Real Estate Index Fund ETF (NYSE: IYR) from iShares, which is up 70% since March of 2009, invests in 76 different REITs. The dividend yield on this ETF has most recently been 5.57%, which is almost twice the S&P 500 average.
Picking the bottom of a market or buying the momentum of a high flying sector is very risky if your outlook is short term focused. Real estate may lose traction in the short term and another dip down is possible. However, it is important thinki about investment alternatives with asset classes outside of traditional stock indexes.
John Jagerson is a co-founder of Learning Markets, LLC. Learning Markets offers daily articles, videos and investing guides about everything from investing in stocks and options to trading currencies in the forex market and more.
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