Double Digit returns expected for REITS next 2 years
I still do have a positive viewpoint on the mortgage REITs. I would say at this point, given the performance of that sector in the past year, that positive stance is really reliant upon continued high-dividend yields for the sector. The sector is still paying out low double-digit dividend yields, and while we are past peak returns, I do think that that level of low double-digit returns should be sustainable for the next two-plus years. And in this low rate environment, that remains attractive.
Well, we might have a viewpoint that mortgage rates are going to stay low while other interest rates go up and that would hurt mREIT's that use leverage.
But also, with mortgage rates low there is a viewpoint of mortgage prepayment increasing and there is early indication of this in the news. Then most agency MBS were bought at premiums to the coupon but if they are prepaid then they close-out at the coupon.