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Deke's Investment Blog - November 23, 2015

Residential and commercial real estate markets at record highs. Prices exceed prerecession levels. The real estate market is strong. Cap rates are historically low. Most analysts say the good times will continue for a while. Particularly rental housing in Southern California where the demand is larger than the supply and they say this trend will keep going. Some investors are asking how long will it last?

Home prices are rising (recently at a slower pace) and the volume of home sales is declining. This happened in 2007 before the Great Recession of 2008-2009. Is this a warning sign? At the same time rents are rising and vacancy rates are falling. This is great for landlords and a squeeze for renters because they have to pay more of their income to be tenants. First time home buyers now are at 30 year lows.

Caution, asset prices change faster than liabilities. Presently there is no evidence of price decline in commercial real estate, but when it happens equity declines quickly. Consider reducing debt and holding some cash. Only make acquisitions with clear upside. Happy Thanksgiving.

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