Many REITs are taking advantage of the strong demand for commercial properties such as office buildings by selling some of their holdings, said Stan Ross, chairman of the USC Lusk Center for Real Estate.
Those profits will show up as dividends for investors in the short term, but the sales raise the question of how REITs will replace the income from those properties and keep growing if they have to reinvest in a seller's market, Ross said.
Lieber said he was more concerned about REITs than about home builders.
The builders have a healthy long-term outlook because of demographic trends and because consolidation in the industry is giving the bigger players more leverage over the market, Lieber said. What's more, interest rates are rising because the economy is healthy, which should translate into more jobs and greater buying power for consumers, he said.
Nonetheless, some investors have been bailing out of builders' stocks. Shares of Dallas-based Centex Corp. hit a record closing high of $79.50 on July 20. On Monday the shares fell $1.67 to $68.79, bringing the decline from the peak to 13.5%.
Toll Bros., a Horsham, Pa.-based home builder, dropped $2.19 to $48.76 on Monday. The stock has fallen 16.3% from its all-time high of $58.25 on July 20.
By contrast, the blue-chip Standard & Poor's 500 stock index has slipped just 1.8% from its four-year high reached last week.
REIT and builder shares have suffered sharp pullbacks several times in recent years, only to resume their bull markets.
The Bloomberg REIT index dived 18.5% between April 1 and May 10 of 2004, a time of surging long-term interest rates. It then rocketed 36% between May 11 and the end of that year.
Lieber said the current decline might clip about the same amount off REIT stocks before they stabilize. "In three days we've probably done about half the move," he said.
Many analysts say the annualized dividend yields on REIT shares, which are typically in the 3% to 6% range, should provide price support for the stocks.
"I'm a believer in REITs," said the USC Lusk Center's Ross, a former real estate accountant. "They are a very good way to invest in real estate for yield and long-term value."