Nassim Taleb on real estate valuations

At the end of 2022, the year end investing post contained the following:

Almost all of these last 15 years, with extremely accommodative Fed policy, are the outlier rather than the norm.

…

Many people understand that the Fed’s policies had at least some impact on asset prices such as publicly traded stocks.

A subset of those people are of the mind that rates are unlikely to go that low again in the short-term, even if and when all the undesirable inflation is pushed out of the system.

In a recent interview, Nassim opined on this fundamental misunderstanding of the impact of interest rates, saying:

We are going to have to learn to live in an environment with higher interest rates. 15 years, that’s a generation of practitioners who don’t know what interest rates mean. So welcome to a new era.

In that same post, I went on to say:

Fewer people comprehend that even marginally higher rates, which are likely to persist, have permanently changed the value of assets relative to when rates were held unnaturally low. This includes stocks, of course. But it also may include assets like real estate. Hello, duration analysis.

Nassim talks specifically about the impact rates have on valuations, and uses real estate as a glaring example:

Systems don’t correct themselves without a little bit of pain. The risk is right there. We know we have real estate valuations that don’t make sense with interest rates, short-term rates, at 5.25%.

The pain has started but there might be a ways to go.