REITs in the Cooling Housing Market

Chart of the Week for September 8-14, 2006

The housing market, which drove US economic growth in the past three years, has clearly been cooling down this year as shown in the above chart. The NAHB Housing Market Index has dropped from 57 in January to 32 in August.

However REITs, which invest in real estate and sell as shares on major exchanges, are doing well so far this year. The Dow Jones Wilshire REIT Index, which tracks the US market, has risen from 210 in early January to 236 at the end of August, rising over 12% and outperforming the S&P 500 Index.

The cooling housing market does have a negative impact on the value of some properties within REITs. However, investors usually focus more on the dividends of REITs rather than the underlying value of their properties; REITs offer steady income by paying out the majority of their taxable income as dividends. While home affordability is deteriorating, demand for apartments is increasing which benefits REITs tied to apartment buildings. In addition, corporate hiring activities in service industries and expansion of office space is also beneficial to REITs investing in office buildings.

Investors shouldn’t chase the performance of REITs because these securities can be as volatile as stocks and bonds. Better to keep a long-term perspective and diversify in different markets.

* This illustration was compiled by information from outside sources which are not affiliated with ICMA-RC. This information is being provided for educational purposes and is not intended to be construed as or relied upon as investment advice. The ICMA-RC does not offer specific tax or legal advice. Individuals are advised to consider any new investment strategies carefully prior to implementing. Past performance does not guarantee future results. Investment returns and principal value will fluctuate, so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data illustrated. For performance data current to the most recent month end, contact ICMA-RC Services, LLC by calling 1-800-669-7400 or by writing to 777 North Capitol Street, NE, Washington, DC 20002-4240, or by visiting www.icmarc.org. Please consult both the current Vantagepoint Funds prospectus and MAKING SOUND INVESTMENT DECISIONS: A Retirement Investment Guide carefully for a complete summary of all fees, expenses, charges, financial highlights and investment objectives, risks and performance information prior to investing any money. Vantagepoint securities are distributed by ICMA-RC Services LLC, a broker dealer affiliate of ICMA-RC, member NASD/SIPC. For a current prospectus, contact ICMA-RC Services LLC, 777 North Capitol Street NE, Washington, DC 20002-4240. 1-800-669-7400. AC:0906-988