As market stumbles, funds pour into real estate

By Ray A. Smith

The Wall Street Journal

With accounting scandals, weak earnings and an uncertain economy roiling the stock market, more and more investors are seeking shelter in buildings -- literally.

Money is pouring into a wide range of property investments at the fastest rate in years. Since the beginning of the year, $2.41 billion has flowed into real-estate mutual funds, according to AMG Data Services, compared with only $307 million in the same period a year ago. Shares in real-estate investment trusts have climbed 11 percent this year, while the S&P; 500 stock index is down more than 17 percent.

But the biggest real-estate investment is coming at home. Sales of new and existing homes hit $522 billion year-to-date, up from $451.3 billion a year ago.


Investors have "been burned by the tech boom and corporate America, so they want something tangible and real, something that always has asset value," says Robert M. White Jr., president of Real Capital Analytics.

But after getting singed by falling stocks, some people worry that they may now be turning to real estate at the top of the market. There is growing concern that the residential housing market is a bubble waiting to pop.

Analysts warn that real-estate mutual funds that focus on the stocks of home-builders could get hit hard if interest rates rise and slow the pace of home sales. Real-estate mutual funds that concentrate on apartments and offices have also weakened recently.

For now, though, one of the strongest sectors remains the housing market, which, spurred by low interest rates, has helped keep the economy afloat. New-home sales rose 8.1 percent in May to a record high, according to the Commerce Department.

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