REITs on the decline

It’s hard not to notice the recent declines of Annaly and Impac Mortgage Holdings, particularly since I’m invested in IMH. Of course, businesses in this sector borrow funds to buy securiti, making them vulnerable to interest rate hikes. Annaly Chief Executive Michael Farrell said that “during the tightening phase of an interest rate cycle our cost of financing will rise faster than the yield on our assets.”

On Tuesday, the FED will decide whether to to raise interest rates to 3.75 percent.

“When the Fed stops increasing rates, MBS consumer mortgage REITS should react well,” PiperJaffray analyst Robert P. Napoli said in a note to investors, adding that he expects the Fed to stop raising short-term interest rates in mid-2006 at 4.5 percent. “It is possible the Fed could take a break due to Katrina, but we believe the tightening cycle is not yet complete.”

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