Real estate records are being set left and right. Listings in NYC are pushing past the $100 million mark, and office space is leasing as high as $300 a square foot. But does that mean a bubble is building? Probably not, argues Bruce Batkin CEO and co-founder of Terra Capital Partners.
In a Barrons piece, Batkin claims that while the top of the market has in many cases surpassed the peaks of the last bubble, the rest of the market is still catching up.
“These price increases have been fueled by investors’ search for yield in a low interest-rate environment and by foreign investors seeking a haven and diversification,” he writes. “Some see this as a sign that U.S. real estate is repeating its climb into bubble territory and is headed for another crash.”
But, he says, outside of the luxury market, home prices have actually risen at a slow pace, and have not fully recovered from the downturn. And according to the S&P/Case-Shiller Composite 10-Home Price Index, home prices remained 15 percent below their April 2006 peak as of July.
Moreover, new-home construction is not back to where it was before the recession. Currently, there are 739,000 new single-family starts annually – 60 percent below the 2006 peak.
“For investors, the message is clear,” Batkin concludes. “Nearly 10 years after the bubble began, they will find a chastened and more disciplined market in which to participate.” [Barrons] – Christopher Cameron