Interest-Rate Sensitivity of Real Estate Investment Trusts

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Abstract
This paper addresses the issue of whether REITs are sensitive to changes in short-term and long-term interest rates. REITs were found to be sensitive to changes in the long-term interest rates in 1973-1979, but in 1980-1985, REITs were sensitive to changes in both short-term and long-term rates. The sources of interest-rate sensitivity were also found to be different for equity and mortgage REITs. Equity REITs are sensitive to changes in expected inflation, whereas mortgage REITs are sensitive to both changes in expected inflation and changes in the real rate.

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