REAL ESTATE PRICES 3/13/21
REAL ESTATE PRICES 3/13/21
I must have had ten people this week ask me about the chance of a major drop in real estate prices.
We are of course all vitally interested in this, prices being at noseblead levels.
While I personally would not want to own anything I am presently lending on at current capitalizations, my concern is more than NOI is apt to drop rather than prices. I can certainly see the possibility of all income real estate selling at minimal or even negative NOIs. (This incidentally really militates in favor of second mortgage lending junior to instituitonal low rate firsts.)
Starting with Alan Greenspan the US has been evolving historically low interest rates and a vastly increased money supply while maintaining lavish federal spending. The dollar has nonetheless remained amazingly strong and China continues to buy US debt. Inflation continues in the 2%+- politically correct sweet spot.
Europe has been in a real negative interest rate environment now for a couple of years.
Vast amounts of money are available for real estate investment and the US government will continue to use asset purchases to pump money into the economy when needed.
Bottom line here is that paying attention to NOI quality, not real estate prices, would seem to be the way to survive a difficult real estate environment. Sell marginal quality properties and upgrade to better quality properties with fewer potential NOI problems. High quality NOI is probably going to be worth more
If there is any other consideration it would be absorption rate: if any single factor is going to crush real estate prices in a given locality it is going to be a fall of in demand, a major change in the perception of desirability. I would probably not now be an investor in Florida (water quality, sink holes, climate change) or California (generally insane political governance), for instance.
pl goduti