We are in one of the largest housing/real estate expansions since WWII (the 3rd of 3 so far). Is the bull case for real estate plausible? I see the return of the zero lower bound/QE 4 & increased development regulations as the 2 biggest factors for a bull case in the RE market.
What is the bear case for RE?
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Yes the bull case for real estate is plausible, since many people are using REITS as hedges against riskier investments that they have, given the business recession that we seem to be facing.
Do you think that it's more useful as a hedge or as a directional bet? I worry that if the fed moves to keep rates stable or raise that REITS could suffer, but then again the Equity market will be hit even harder in that case.
yes that's true, but considering that we are in phase 4 of the economic cycle, I think that no matter what, real estate will be valuable as a hedge and a directional bet. When we move back into phase one, equities will rise, as well as bonds yields, and the "safe sectors" such as real estate will probably fall in value.
That's definitely fair, but I think that the next cycle of tightening will likely have rates move up more slowly. I think in that case RE could manage to perform fine and not fall significantly after phase 1 starts.
good point
it certainly looks that way right now, with how slow the Fed is to react to situations, not to mention the fact that they should be looking ahead, not behind
I think that the Fed needs to get ahead of rate cut expectations to protect against a downturn in the short term. No one is expecting the Fed to get ahead of it, so I think that's why far out of the money put options have jumped in price recently.
I think that the economy is really out of balance because the national debt is so large. I need to read more about large scale debt deflations, but I think that purchasing assets (QE 4) is going to have to happen to shore up liquidity in a downturn, and help to delever the national balance sheet. I worry that without Fiscal Policy initiatives, the Fed is stuck because tax receipts are far too low to deal with the deficit without increasing the inflation target.
good assessment, the Fed has never been on time, and will most likely never be on time.
I wonder what a different mechanism for setting monetary policy would look like. Or what we could do to improve it.
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