I just returned from a business trip to Toronto. A few months ago, I spent a day in Vancouver on the way back from another work trip.
One thing stood out in both Canadian visits: The real estate frenzy north of the border!
Flashy new condominium towers going up everywhere. Television ads touting real estate investments virtually nonstop.
Investors asking whether they should get on board … or to get out while the gettingai??i??s good.
It reminded me a lot of what we saw in this country back in the mid-2000s ai??i?? and thatai??i??s concerning. After all, the housing crash that followed wiped out trillions in investor wealth.
Here in the U.S., Iai??i??m actually not as worried about RESIDENTIAL real estate as I was 11 years ago. Iai??i??m much more concerned about the COMMERCIAL real estate craziness Iai??i??m seeing.
One stark warning sign: CRE prices have soared more than 95% in the current bubble, even more than the 81% surge we saw in the mid-2000s bubble. This chart shows what Iai??i??m talking about …
Pretty scary, huh? The Federal Reserve and its counterparts overseas deserve most of the blame for the bubble. Thatai??i??s because their NIRP/ZIRP/QE policies fueled an epic surge of money into real estate in search of yield. Those money flows drove CRE prices far above fundamental value ai??i?? leaving the market incredibly vulnerable to a crash.
Ironically enough, even the Fedai??i??s own policymakers are now sounding the alarm. Boston Fed President Eric Rosengren just gave a speech in China warning about CRE risks, and followed up with bearish comments in a Wall Street Journal interview. His warnings are clearly too little, too late. But they do underscore the concerns Iai??i??ve been sharing for the past year.
My advice to investors like you: Take the Fedai??i??s comments to heart. Dump commercial real estate investments before they torpedo your portfolio. This includes overvalued underlying properties, as well as REITs and stocks; with exposure to businesses like construction supply and property marketing and sales.
Until next time,
Mike Larson is a Senior Analyst for Weiss Research, and is also the creatorAi??of the courseAi??“How to Profit From Rising Interest Rates”. A graduate of Boston University, Mike Larson formerly worked at Bankrate.com and Bloomberg News, and is regularly featured on CNBC, CNN, Fox Business News and Bloomberg Television as well as many national radio programs. Due to the astonishing accuracy of his forecasts and warnings, Mike Larson is often quoted by the Washington Post, Chicago Tribune, Associated Press, Reuters, CNNMoney and many others.