In light of the recent rise in AI, such as ChatGPT and DALL E, I'd like to share this article from Don Zech, commercial real estate expert, on how this might effect the real estate industry.
Cheers, JR
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
As I have written before, uncertainty is a killer of markets. When investors or business owners have a murky view of the future – reluctance to make commitments abounds. For the last decade, we have lived in a FOMO (Fear of Missing Out) society. It has driven stocks and real estate higher and higher. I am now warning that we are entering a time of FOL (pronounced Fall) or Fear of Losing. Nossin Taleb said, “It takes five years to learn how to make money…and twenty-five to learn how not to lose it.” So successful real estate investment comes down to using your capital in such a way that its spending power is not only preserved but increased over time – in the form of cash flow or capital gains or both.
The end of 2022 couldn’t have come soon enough for many. Sputtering capital markets, job cuts, raging inflation, the crypto meltdown and rising interest rates marked a year of upheaval. I think the odds are high for a recession in 2023 with an unlikely recovery until 2024 or even 2025. Forecasts suggest that we could see a big drop in real estate values ahead. Bayes Business School in London indicated that values need to fall 25% to 30% to match today’s lending realities of tighter underwriting and higher costs. As a result, many borrowers may need to pump in additional cash to successfully refinance their loans coming up in 2023 and 2024.
Before declaring victory on inflation, the Fed will need to be convinced not only that inflation has settled near the 2% target but also that the inflationary psychology has been extinguished (and that comes with some pain). To accomplish this, the Fed will likely want to see a positive real Fed funds rate – at present it’s minus about 2.2% (4.5% Fed rate minus 6.7% inflation).
I am currently reading, The Price of Time (The Real Story of Interest), so far it is very interesting. However, I noted that some things never change. The 1700’s Scottish economist (Wealth of Nations) stated, “When money is dear land is cheap and when land is expensive money is cheap.”
On a positive note,...
