Real Estate – Supply Shortage Or Rising Rates?


Davidson and I have disagreed on real estate for some time now. My take is that we are woefully short on supply and builders just aren’t building homes at the pace they used to and commercial building has been just as sparse. Because of that there will be constant upward price pressure on real estate.


Add to this a dramatic loosening of Dodd-Frank legislation that I feel will only increase demand as lending normalizes.  So, while I agree housing at some point will see another period of price declines or stagnation, I don’t think this happens outside of a US recession.

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We will see…….

“Davidson” submits:

US Real Estate character has changed over time with influx of foreign capital. REIT dividends have been competitive with 10yr Treasury rates. As inflation fell through 1980s to 1990s rates followed, real estate was priced higher and dividend rates followed that of 10yr Treas. The 10yr Treas at 2.4% is half where this rate should be(~5.0%) vs. ‘Natural Rate’ at 4.6%. This is due to the influx of foreign capital the past 10yrs.

We should normalize over time if Trump pushes back sufficiently against sociopathic elements of Iran, No Korea, Russia, China and etc. Global capital will then rebalance and rates will rise, real estate will fall in popularity. This cycle will take time but it will occur.

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Todd Sullivan is a Massachusetts-based value investor and a General Partner in Rand Strategic Partners. He looks for investments he believes are selling for a discount to their intrinsic value given their current situation and future prospects. He holds them until that value is realized or the fundamentals change in a way that no longer support his thesis. His blog features his various ideas and commentary and he updates readers on their progress in a timely fashion. His commentary has been seen in the online versions of the Wall St. Journal, New York Times, CNN Money, Business Week, Crain’s NY, Kiplingers and other publications. He has also appeared on Fox Business News & Fox News and is a contributor. His commentary on Starbucks during 2008 was recently quoted by its Founder Howard Schultz in his recent book “Onward”. In 2011 he was asked to present an investment idea at Bill Ackman’s “Harbor Investment Conference”.