Based on the historical data and the high probability for the U.S. to have already or to soon enter a recession the real estate decline that is underway will be significant. Minimum declines for commercial and residential real estate will be 39% and residential 26.1% from their March and June 2022 respective peaks. Commercial property will not reach a new all-time high until 2028 and residential until 2032 at the earliest. Video: “Comercial Real Estate to Decline by 39%” is at bottom of page.
Please note. For my U.S. Recession research see my article pertaining to “Great Depression” at bottom of page.
The prices or valuations for commercial and residential real estate are extremely sensitive to interest rates and especially the yields of the 10-year U.S. Treasury bonds. It’s because mortgage rates are based on the yield of the 10 Year U.S. Treasury bond. The charts below tell a story for why commercial and residential real estate will steadily decline for the foreseeable future.
The chart for 10 Year U.S. Treasury bonds below covers 1929 to 2023. The chart depicts the steady increase in yields from a record low of 1.98% in October 1941 to the 1981 all-time high of 15.3%. The chart also depicts the steady decline of the yield for the 40 years from 1981 to the July 2020 all-time low of 0.62%. Most importantly the chart illustrates that the yield has historically moved in 40-year up and down cycles. A new 40 year upcycle began in July of 2022 at the low of 0.62%.
The chart of the Green Street Commercial Property index below depicts that commercial property peaked in August of 2007 and declined by 39% from the peak to the May 2009 low. The index exceeded its prior high in April 2013, approximately six years after reaching the August 2007 high.
The above chart also depicts that the index peaked again in March of 2022 and as of March 2023 had declined by 18%. The total decline for the index when it reaches its bottom will likely exceed the 2007 to 2009, 39% decline. The six years that were required for the index to exceed its 2007 high in 2013 is also likely to be exceeded. It’s because the 10-year yield from August of 2007 declining from 4.67% to 1.76% in April 2013 was very bullish for all real estate. This compares to the yield increasing to 3.99% in March 2023 from 2.33% when the index peaked in March 2022. Steadily increasing yields is very bearish or negative for all commercial and residential real estate.
The S&P Case Shiller U.S. National Home price index below for 1987 to 2023 depicts that home prices declined by 26.1% from the May 2006 high to the December 2011 low. The index did not exceed the 2006 high until November 2016 which was approximately 10 years later.
The above chart also depicts the June 2022 all-time high for the index. The decline for the index when it reaches it bottom is likely to exceed the 26.1% prior decline. The duration to get back to the high from the prior high is also likely to exceed the 10 years that were required for the index to return to the 2006 high. It’s because the 10-year yield at the index’s May 2006 peak was 5.11%. When the index’s 2006 peak was exceeded in November 2016 the yield had declined to 2.14%. The decline was very bullish for real estate. This compares to the yield climbing from 2.93% at the index’s June 2022 peak to 3.99% at March 1, 2023.
My recommendation is that all commercial real estate including commercial buildings, apartment buildings and rental houses to be sold. The proceeds should be utilized to deploy a return of capital defensive strategy. For about the strategy view “Return Of Capital” video.
I have conducted extensive research on the S&P 500 and the effect that the consumer price index has had on the index since 1871. Based on my findings I have predicted a decline for the S&P 500 that will be its most significant since its 1929 to 1932, 85% decline. I have also conducted research on the Federal Reserve’s 1919 to 1929 discount policy mistakes which led to both the first and second Great Depressions. Since the Fed repeated the mistakes in 2020 and 2021, I am predicting for the U.S. to enter into its third Great Depression by end of 2023. My articles which provide the rationale for the predictions and my follow up articles on the subsequent events that subsequently occurred and support the predictions are below:
- Prediction made: June 4, 2022 “Inflation to Shoulder Blame for 79.95% S&P 500 Decline ”
- Article in Support of Crash Prediction, February 17, 2023 “Deteriorating Cash Flow is Leading Indicator of DISASTER for Amazon, Apple & U.S. Economy”
- Prediction made: June 4, 2022 “Federal Reserve’s Repeat of 1920−1931 Policy Mistakes Set Stage for Next U.S. Great Depression”
- Article/Event in Support of Depression Prediction, March 11, 2023 “Bank Collapse a Watershed Event, Probability for U.S. to Enter into 3rd Great Depression Increases”
For all articles and videos pertaining to the two predictions see also “Articles & Videos in Support Markowski’s S&P 500 Crash and Great Depression Predictions”.
Prior media verifiable predictions 2007 to 2020:
Comercial Real Estate to Decline by 39%
Michael Markowski, a 46-year financial markets veteran, is the Director of Strategies for AlphaTack, whose slogan is “growing assets against the wind”. He conducts empirical research of the past, which he then utilizes to develop algorithms to predict the future. His research of Enron’s Financial Statements after its infamous bankruptcy led to the development of a Cash Flow Statement algorithm. The algorithm was utilized to predict a “day of reckoning” for Lehman, Bear Stearns, Merrill Lynch, Morgan Stanley and Goldman Sachs in a September 2007, Equities Magazine article. Michael’s research of prior market crashes led to the development of the Bull & Bear Tracker (BBT) algorithm. From 2018 to 2022, the BBT gained 177% vs. the S&P 500’s 50%. His predictions of all periods of heightened market volatility from 2008 to 2022 and that S&P 500 at March 23, 2020 had reached its bottom which was exact are media verifiable.
"Is Michael Markowski the 21st century's reincarnation of Benjamin Graham?"
("Best Stock Picker on Wall Street)
“Have Wall Street’s Brokers been Pigging Out?”
(predicted demise of Lehman in 2007 and before its 2008 bankruptcy)