A Very Brief Note on Rates and REITs

Someone asked how many rate cuts I think are priced into REITs so far.

I don’t think this question is easily answered. There is lots of variations in what REITs have done already, and some of it is specific to individual REITs or REIT sectors.

SAFE should be the most rate sensitive, and is up 50% from its October low. That low occurred when the 30-year Treasury hit 5%.

But SAFE rose more than 50% to the end of year, as the 30-year dropped to 4%. Remember way back then, when the whole world thought there would be 6 or 8 rate cuts in 2024? Gee whiz, the whole world was wrong.

Now the whole world expects 2 to 4 rate cuts by year-end. The 30-year stands at 4.38%. What will matter for SAFE is what it does. You can see the incredibly tight correlation here:

If this relationship retraces, then long rates will have to go to about 3% to get SAFE up to $50. How many cuts in the Fed Funds rate will that take? Maybe 6. My range would be from 4 to 8.