Not trying to be an economist but have been thinking about rates vs. RE for awhile now as the global economy seems to be quite stressed. Would love to hear thoughts on the below.
I recently read that 30% of global bonds are currently trading at negative interest rates, with Germany recently completing its first negative yielding bond issuance. It seems that with the US economy tetering on Trump's trade war tweets, and China potentially unwilling to compromise, we could be on the verge of our next 'correction' at which point Jerome Powell will have to decide on the course of action that could reinvigorate our economy. With the 10Y and 2Y currently at 1.5% each, we don't necessary have a lot of 'room' for further easing given it would only be a matter of time before we are also at 0 (or worse, negative like our European brethren).
If US real estate is seen as 'safe' globally, and foreign capital continues to flow into the US (lowering the yields on UST bills), would higher yielding US real estate assets not also experience a reduction in cap rates since RE typically trades at a spread to UST bills? In other words, if our interest rates continue on the downward trajectory they more or less have been on for the past 20 years, are cap rates likely to remain where they are today (or go lower) for the long term?