Reversion to the Mean
a mean that seems to be an ever increasinly 'rising mean' so, if one deals with residential (one unit) property, chances are the owner lives in it and so... who really cares. if the individual in question is a speculator, well... he knew of the dangers (or at least he should have known.)
commercial real estate, for the most part, is governed by cap rates, which in turn are influenced by the return of other investments and risk exposure.
lately, cap rates have been getting lower (in certain class of real estate and markets), primarily because the return in alternatives to RE investing are lousy... but it has also be partially to a perceived increased risk, where the investor demands a better overall return.
if you have noticed, cap rates have not necessarily been rising as interest have increased.... this could also be due that lots of available $$ are chasing too few good properties...
so...
reversion to the mean is all good, i am not, however, so sure it applies fully to commercial real estate as it would apply to much more volatile instruments such as stocks....
houses ? oh well.... yes... but as i said there is a large portion of owner-occupants who may not care, hence react as if it were a different class of investment...
With this new price-to-rent ratio, I can now work backward to determine what the new value of my rental house will be assuming that my rent stays the same at $1,900.
yeah well... steenking houses is not the entire RE market, there are lots of other classes of RE.... and many other markets where the word bubble has not the same meaning.... |
