Why are REITs sensitive to interest rates, and what does that mean for me in 2026?

REITs borrow heavily to buy property, so when interest rates rise their financing costs climb and their dividend yields must compete with safer bonds, which can push prices down. When rates fall, the opposite tends to happen. This is why REITs often move sharply around Federal Reserve rate decisions. Heading into 2026, rate expectations remain a key swing factor for the sector, so REIT prices can stay choppy. For a long-term investor this volatility is noise, not a reason to avoid the asset class, but it does mean you shouldn't hold REITs for money you'll need soon. Focus on the steady rental income and diversification benefit over years, not on quarter-to-quarter price swings driven by rate headlines.