Chart of the Week – Real Estate Sentiment

April 6, 2023

Real Fear in Real Estate: I’ve previously documented the risks facing commercial real estate as well as housing, given the extreme overvaluation reached in the wake of the pandemic stimulus. But by this point a lot of people are talking about it, and the pain is starting to become more pronounced, especially in liquid markets e.g. REITs. As such, the Sentix survey has seen real estate asset class sentiment drop to the worst level in the history of that survey — even worse than the depths of the financial crisis.

There’s basically 2 ways this unfolds: either investors are way too pessimistic and real estate starts to bottom and surprise to the upside (I think this can be possible at least for REITs, and at least in the short-term); or this negative sentiment feeds into the fundamental headwinds and accelerates/reinforces the downdrafts.

Even with the contrarian aspect, I think it’s still hard to get excited on real estate in the immediate term with the rate shock on the one hand and weaker growth prospects ahead on the other hand. Finding “goldilocks” is going to be very hard indeed…

Key point: Investors are extremely pessimistic on real estate as an asset class.

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