Real Estate
Real estate means land and buildings: homes, offices, shops, warehouses and data centres. You can own it directly or through REITs, companies that own property and trade on the stock market.
How you earn
Rent and rising property values. Because most property is bought with a mortgage, small price changes have a large effect on the owner's equity, both up and down.
What moves the price
- Mortgage rates, which decide what buyers can afford.
- Local supply, building costs and zoning rules.
- The economy and employment, which drive rents and vacancies.
- Structural shifts, such as remote work for offices or e-commerce for warehouses.
How it can hurt you
Property is hard to sell quickly, costly to buy and sell, and concentrated in one place. Leverage turns a 20% price fall into a much bigger loss of equity.
The rhyme
The US housing bust, 2006–2012From the late 1990s, easy credit and the belief that house prices never fall nationally pushed US prices to records. When rates rose and teaser mortgages reset, defaults spread. The S&P CoreLogic Case-Shiller national index fell about 27% from its 2006 peak to its 2012 low, and the losses on mortgage securities set off the 2008 financial crisis. Similar booms and busts rhyme across the world, from Japan in 1990 to Spain and Ireland in 2008.
Terms you will hear
- REIT
- Real Estate Investment Trust, a listed company that owns property and pays out most of its income.
- Cap rate
- Yearly rental income divided by the property price.
- Loan-to-value
- The mortgage as a share of the property's value.
- Vacancy rate
- The share of space that stands empty.
Educational content only. Not a recommendation to buy or sell. Past performance does not indicate future results.