Davidson and I disagree here on some points. I print both opinions because I think Davidson is brilliant (but nobody is perfect) so I am obliged, given the constant pin point accurate analysis he has provided us over the years to print this even if I disagree to some point (and I very well may end up being wrong). I also feel obliged to place my two cents here because I feel differently. My readers read both and decide.
I do not see RE as being in a “bubbleâ€. The principle reason is that the current run up in pricing is due virtually solely to supply or lack of it. Nationally we are at the lowest supply of home for sale in a decade. Regarding mall, there has not been a Class A regional mall built in the US (that I have been able to find) since the great recession’s onset. So, yes, prices of existing assets have risen but that is a function of there being less of them available.  We have roughly 15MM more American’s in the US since 2008 and fewer shopping centers. At the onset of the great recession in Q3 2008, we had 130,500,000 homes in the US housing stock. As of Q3 2016 (latest data available) there were 135,600,000. So, 15MM more people and only 5MM more homes for them…..prices must go up.
Now, this dearth of single family home building has lead to an explosion in multi family units (people need a place to live). Over the same timeframe we’ve seen over 7MM multi family units built. So, I am of the opinion “if†there is a bubble in RE, it is in the multi-family sector. Should we see conditions for normalized lending for SF purchases, the multi-family sector could be in for a rough few years with falling rents and increased vacancies.
Is sovereign debt in a bubble? Probably yes. It has been the “safe haven†for the past 9 years and as global conditions turn to growth, and interest rates rise, its allure will wane and that will cause price declines to existing debt…it could get very ugly for large holders of it.
