It was just a few months ago when treasuries were at 3.25% and it appeared that 6% interest rates were a year away...5 caps in major markets appeared to be upon us. Then it didn't happen. Since I got in the business in 1995 one thing has remained true, we never raise rates to previous high's and we lower them beyond the previous low. So, if we are in fact due for a recession in the next 18mo, is it fair to say negative interest rates are coming our way? We all saw what fixed rates in the low 3's did to caps. Imagine fixed rates of 2.5%. Throw in the lack of new home construction and for rent product, it seems that for MF is due for another run up.
Rents just keep going up in SoCal too. It appears that 400k a door is the new norm for B locations.
Short of some crazy trade deal being struck with China, it appears markets are steady and rates aren't going to make a big leap. We just might be at the beginning of something wild happening again in MF.
You shush your mouth
The reason interest rates dropped substantially is that the Fed needed to stabilize the economy--or else. So, we'd need some sort of adverse catalytic event to put the economy in an anemic state. If that happens, there will be a lot of fear before investors are overpaying with rates at 2.5%. Thus, in OP's scenario, we aren't at the bottom right now but buying today would still be very profitable if you can weather the "storm" that's supposedly coming. I'm not convinced that storm is coming soon for the reasons people expect (most private sector debt levels still aren't egregious, but corporations are getting close to scary territory).
The biggest risk, in my opinion, is the 2020 election and the resulting tax ramifications. Think: no more 1031 + increased capital gains tax + changes to depreciation. That combination would reprice the majority of assets overnight and the market would temporarily come to a halt. I'm not saying that's the scenario that will play out, but anything is possible now that it appears a big part of what Democrats will run on is taxing the wealthy. No better way to get back at a controversial real-estate-developing POTUS than to completely re-write the tax codes that benefit him as soon as he's out of office.
As an aside, I think real estate as an asset class has matured and it's now a lot harder to make outsize returns, leading to investors hoping for a recession. Tangentially, it's a lot harder to make money in hedge funds today because of the amount of money in the market.
It seems there's legit theory that cycles turn when the White House changes flags. I think business sentiment is wildly different once Trump is out of office in 2020 and Democrats rally behind some more liberal policies, including pro-social spending, tax hikes, loophole changes, a shift back "on" towards regulation, etc.
Kinda joking here but I bet you'll start hearing "but muh exploding government debt & deficits" all over again from Republicans and all of that negative sentiment will create a drag on the economy.
I think the elephant in the room is the rent ceiling.
It seems rents across all classes are outpacing CPI. When do people tap out? I suppose SoCal is a good example of market where rents don't seem to let up, but there are many other areas of the country where renters can just move an extra 10 minutes from their job and save hundreds of dollars.
Mobility is preferred as well as young folks stay at jobs for shorter durations than past generations. Oddly enough, the high income renter is the fastest growing cohort right now and I think this subset of the renter pool will continue to drive high end MF.
Bingo. Buy $ESS, buy $EQR. The supply glut is coming to an end. High end apartments catering to high income renters in gateway markets will perform well over the next several years.