REITs: Analysts See Continued Profits in 2007

As we've noted before--the U.S. housing market had its up and down in 2006. But when it comes to REITs (real estate investment trusts)--they did incredibly well--up on average of 35% for 2006. As we've been asking the question in other economic areas today--we ask if that kind of return will continue for REITs in 2007? Most say yes. John Wenker is portfolio manager for First American Real Estate and Michael Grupe is Executive VP of Research at NAREIT. Both were on "Power Lunch."

Wenker says he expects REITs to keep going strong in 2007. He points to the areas of office space, apartments and self-storage as helping to keep the sector growing this year. But he also says that if M&A's drop off a bit this year, that could have a negative effect on REITs.

Grupe says no one knows for sure if REITs will have such a great year as in 2006 but he says that he's confident that if the economic fundamentals are strong in the U.S.--so too will be REITs.

Grupe says that any slow down in economic growth could have an effect of raising rates by the Fed--and that of course would in turn slow down REITs. Both he and Wenker believe moderate growth--and not too much inflation--are best for the sector.

Both men say that diversification is the key in REITs as in any investment. The issue came up when a viewer submitted an email question (Robert from St. Louis). There are two parts to the interview below.