The Real Estate Investment Trust index closed on Friday, June 6, 2008 at $138.10.

The high over the last 52 weeks was $166.84 on July 16, 2007 and the low over the last 52 weeks was $119.74 reached on January 22, 2008. This represents a drop of -25% from peak to trough compared to the TSX which dropped -11.8% and the S&P500 which dropped – 15.4% during the same period. Since the bottom in January the REIT Index has increased by 12.6% vs. the TSX, which has increased by 18.5%, and the S&P 500, which has increased by 7.1%.

Technically, we are seeing a buy signal, which occurred on April 28, 2008 when the current price crossed the 50-day moving average of $130. Since then the current price has managed to remain above the 50-day moving average. Watch the 200-day moving average.

Some of the companies you may recognize in the REIT Index include Boardwalk Real Estate Investment Trust, Brookfield Asset Management, Calloway Real Estate Investment Trust, Canadian Apartment Properties Real Estate Investment Trust and H&R Real Estate Investment Trust. Most of these companies own real estate for the purpose of leasing or renting to commercial or multi-family use.

Are real estate companies overvalued? Fundamentally there is a pretty strong argument that real estate companies are. The P/E ratio on this index is currently at 116.92 vs. the TSX, which is 18.13. The dividend yield of 6.60 % is attractive, however, we would want to look at the payout ratio relative to cash flow as well.

Is real estate overvalued? Again, fundamentally the argument is strong that real estate is overvalued. In an article in the Globe this weekend, it was noted that economists from Merrill Lynch are concerned about the housing market. Canadian home ownership rates have outpaced the US for the first time in years. Home ownership rates are at 68.4% in Canada vs. 67.9% in the US. Is this sustainable? In addition, according to Merrill Lynch economists Canadian house prices have outpaced incomes. Source: Globe & Mail, Merrill Lynch, and Haver Analytics