What I’m Reading
Blind Spot: When calculating inflation, the largest component of CPI is shelter. However, rather than using home prices, the calculation uses OER or Owner’s Equivalent Rent, a measure of how much home owners would have to pay to rent the home they live in. While home prices soared last year, rents were mostly flat. Now OER – which tends not to be transitory like food prices – is starting to strengthen, indicating that stronger inflation may be coming. Barron’s
Triple Threat: The worst-case tax scenario for real estate would be a simultaneous end to the 1031, basis step-up on death and doubling of capital gains. IMO, elimination of 1031 and doubling of capital gains would lead to far less transaction volume and increase the desirability of yield-generating investments, likely compressing cap rates. Ending basis step-up would mean nuclear winter. I haven’t a clue how this would actually play out since it would result in a massive capital gains tax coupled with the inheritance tax to heirs. Fortunately this is a low-probability event but odds are still greater than zero. Globe Street
Flipped: For the first time in 15 years, it was more expensive to buy an existing home than a new home in March. Going to assume that this has a lot to do with the composition of new homes sold starting to weigh towards smaller units due to cost inflation issues. Bloomberg Quint
Warning Signs: While the multifamily sector has fared relatively well nationwide, some major gateway markets are showing signs of fraying with a large number of properties with CMBS loans falling below 80% occupancy. Trepp
Crosshairs: For about a decade, US real estate firms have been tapping the Israeli bond market as an attractive source of unsecured capital for their projects. Some big players took advantage, overleveraged and ultimately defaulted on their debt. As a results, the Israel Securities Authority has proposed a new rule change that targets how how mutual funds assess a company’s rating would effectively relegate foreign issuers — mostly American real estate firms — to junk bond status starting next year. If this comes to pass, it would force many mutual funds to unload their positions, increasing the cost of debt service substantially. The Real Deal
Chart of the Day
Source: Bloomberg
WTF
Covidiot of the Day: A school is coming under fire after it reportedly sent out a letter telling vaccinated employees they could not be around students, citing false claims linking the vaccine to changes in women’s reproductive cycles because Florida. The Hill
Miracle Cure: A family was indicted for selling industrial bleach and promoting it to be the cure COVID-19 and other medical conditions, including cancer, diabetes, and HIV/AIDS because Florida. Yahoo News
Basis Points – A candid look at the economy, real estate, and other things sometimes related.
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