I've been thinking a lot about the OP's question lately. I'm itching to start a small position - no more than 10% of total portfolio - in a REIT ETF like VNQ.
This is purely subjective, but to me things are pretty frothy right now. Yes, that is a term I cannot back up.
So here's what I look at.
--I'd like to see the dividend yield on VNQ much higher than it is now, e.g., 5-6% minimum.
And/or I'd like to be reading about:
--real estate markets decreasing or flat-lining price-wise in expensive areas like SF for
several quarters
--higher vacancy rates in the residential rental space that hurt firms like Equity Residential
--increasing office rental and mall rental vacancies
These are the data points I'll be looking for, none of which I read about now.
ONE EXAMPLE: Look at the chart on top of this page (
http://us.spindices.com/indices/real-estate/sp-case-shiller-20-city-composite-home-price-index). Make sure you click on the NATIONAL tab at the top of the page. I can't comment on whether we're high, or low, or whatever. But it's not where I'd want to get in. In today's terms, I'd like to see that index flirting with the low 140s.
If that means I sit out for a decade, I'm down with that.