Even by the standards of the great bear market of 2008, REITs have had an especially dreadful year. The Dow Jones Wilshire REIT Index has crumbled by nearly 44% in 2008 through December 18, 2008. The loss exceeds even the dismal performance of the U.S. stock market, which is down about 39% year to date, as of last night’s close for the Wilshire 5000.
But as REIT prices have tanked, yields have soared. Equity REITs are yielding over 9% these days on a 12-month trailing basis. That’s up from about 3.5% back in November 2006.
Does the hefty trailing yield signal that it’s time to start buying? Or do the expected risks still outweigh the potential rewards? For some thoughts on the hazards and opportunities that await real estate investment trusts, we talked earlier today with veteran REIT analyst Barry Vinocur, editor of REIT Zone Publications in Novato, Calif. In our latest episode of Inside View–our new podcasting series–Vinocur takes us on a tour of the battered landscape of publicly traded real estate.

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Mr. Market is hurting these days, but what exactly does that mean?
The world’s capital and commodity markets are comprised of multiple asset classes, of course, and they don’t often move in lockstep. The last few months are the exception, but this too shall pass, just as the tendency for bull markets to bloom everywhere during 2002-2007 gave way to something else.
It may not be obvious from casual observation of late, but if we consider longer periods the numbers suggest that owning multiple asset classes is still a worthy pursuit for strategic-minded investors. That may sound counterintuitive given all the red ink this year, but the global market portfolio has held up fairly well over time.
Consider our CS Global Market Index (CS GMI). Although it’s suffered recently, for the past 10 years through November 2008 it’s earned a modest but positive 2.95% annualized total return. (CS GMI is our proprietary benchmark of the world’s major asset classes: global stocks, global bonds and global REITs plus commodities–based on U.S. futures—with everything weighted as per the various market values at the close of 1997.)
Three percent may look unimpressive, but keep in mind that gains over that time frame aren’t universal. US stocks, for instance, are off by an annualized 0.37% during that stretch, as per Russell 3000. Bonds, on the other hand, are in the black for the 10 years through November 2008. The Lehman US Aggregate, for example, is higher by an annualized 5.28% for the decade through last month.

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