The Federal Reserve knows commercial real estate is crashing! 🤧

“Property prices—including on commercial real estate (CRE), farmland, and residential real estate (RRE)—generally take more time to respond to sudden changes in economic activity but appear likely to come under pressure”

“Asset prices remain vulnerable to significant declines should the pandemic worsen, the economic fallout prove more adverse, or financial system strains reemerge”

“CRE markets are an example, as prices were high relative to fundamentals before the pandemic, and disruptions in the hospitality and retail sectors have been severe”

“The vulnerability stemming from elevated CRE valuation pressures, coupled with a dim outlook for the sector as indicated by recent declines in equity real estate investment trust (REIT) prices, suggests that CRE may undergo a substantial repricing in response to disruptions generated by the COVID-19 pandemic”

“Prices of commercial properties and farmland were highly elevated relative to their income streams on the eve of the pandemic, suggesting that their prices could fall notably”

Do not fight against the Fed! 🙅🏽‍♂️

Source: Federal Reserve Financial Stability Report, May 2020 (May 15th, 2020)

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