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Distorted Markets: Real Estate Is Riskier Than You Think

Distorted Markets: Real Estate Is Riskier Than You Think

Since the commercial real estate market bottomed out in 2009, prices have risen more than in the run-up to the crisis and cap rates are shrinking—which means more risk.

“Real estate is not cheap anymore,” Green Street senior analyst Peter Rothemund says. The risks of these sky-high prices showed during the February selloff, when the values of real estate fell and deals slowed.

The huge flood of foreign investment hasn’t helped, either, with foreign investors' lack of price sensitivity driving costs north.

Last year foreigners bought up $57B in US property, compared to a $3B average over the previous five years, the Wall Street Journal reports. 

The risks in real estate and the economy as a whole have paralyzed the Fed in its quest for rate hikes, as the central bank worries that raising rates could cause markets to collapse. [WSJ]