Are real estate values nearing a peak?
by Sean McDonald, MAI, Baton Rouge, LA
On the other side, Seeking Alpha has an article pointing out that increasing interest rates have not historically resulted in increasing capitalization rates, as spreads have tended to compress when interest rates increase, though cap rate is only half of the equation. Expected income is the other half, with the basic equation being Value = Income / Rate. If rental incomes decrease and cap rates stay flat, values decrease.
I know this is probably not a popular thing for an appraiser to be looking at, but the articles are out there and I think its good for others to be cognizant of them. Maybe now is just the time to be completing your deal or getting a value opinion rather than later.
We’ve not seen much in the way of decreasing values just yet locally, though it does seem that the volume of sales is decreasing and that pricing for some property types has leveled off over the past year. Is it a sign that we are at or near the top for this cycle?
What are you seeing and expecting?
This article was published by Sean McDonald, MAI and shared in this blog.