“Summer Charts” is a series of current financial topics explained in dots, lines and only a few words—just the right “mix” to concisely convey ideas for critical thinking about economic topics and investing.
My little community in Edgewater, N.J. is nearly unrecognizable compared to three years ago; the real estate boom “spillover” from New York City has been unfolding aggressively, with streets having changed their “faces” to now incorporate the scars of unfettered new construction. What were once considered proudly accomplished middle-class homes (or important “quiet spaces” of woods or grass) have given way to million-dollar properties, likely leaving many original residents to question how the future will look for them and their families.
This dilemma for some and, at the same time, regal opportunity for others is nothing but a reflection of the asset-price inflation induced by continued accommodative central bank policies. As if it were not enough that the S&P 500 has been closely correlated to the expansion of the Fed balance sheet (97 percent), another asset pool has been linked into that same relationship, especially over the past five years: real estate of households and nonprofit organizations.
The issue observed is twofold and begs an investor’s attention; not only does accommodative policy continue to induce asset-price inflation, but real estate may currently be in the process of “overshooting” even the lofty targets set by the equity market (as measured by the S&P 500).
Matthias Paul Kuhlmey is a partner and head of Global Investment Solutions (GIS) at HighTower Advisors. He serves as wealth manager to high net worth and ultra high net worth individuals, family offices and institutions.