Is Now a Good Time to Buy REITs?
Q: Given the turmoil in the housing/credit markets, is now a good time to buy REITs?
A: In A View from the Intersection of Risk and Reward 
, real estate funds stood out as having earned above-average returns over the past decade while incurring less risk than the market. REITs are a good diversifier for a stock portfolio, and a great way for the average person to get the diversification benefit of real estate without having to be a landlord. Given the average REIT is down 8% so far in 2007, it's understandable why some investors are wondering if now is an opportune time to jump in.
It's worth noting that most REITs invest in commercial property, so the recent housing market issues aren't a direct problem. However, the residential market does impact REITs in at least two ways. First, to the extent that housing issues cause the economy to soften, that definitely impacts REITs. Second, the subprime crisis has sent ripple effects throughout the credit markets, making it more expensive for other credit-dependent businesses to get financing. That raises costs for the commercial property businesses owned by many REITs.
While REITs have become more affordable this year, they're still not cheap. The average REIT has gained an average of 19.6% per year over the past five years, even after this year's 8% loss. So if you're sold on the merits of real estate as a portfolio diversifier, this is probably a reasonable time to start dollar-cost-averaging in. But REITs likely aren't a deep enough value yet to attract pure bargain hunters. 
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