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CRE valuations seem high, but the spread of cap rates over treasuries is so comfortable. Also, really nice to see a chart running back to 1990. Too many only run 10 years or back to just before the GFC. Nice to get some context odnmultiole cycles.https://twitter.com/WTCM3/status/1123602793900593153 …
How do we explain the historically large difference between ust yield and average re cap rate? They should track each other pretty closely no? Rates fall => borrowing becomes easier => prices rise => cap rates fall
The correlation btwn interest rates and cap rates isn’t as strong as you’d think. They’ve both generally moved lower over the last 30 years or so, but there’s a fair amount of noise to it, due mostly to inflation (or lack thereof) and rent growth expectations
A better spread to watch has been cap rates vs Baa bond yields. The market has generally viewed them as having similar risk profiles so you can better judge when RE is over or under valued.
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