We expect it to have limited long-term impact on property NOI, but cap rates will keep compressing as a result of lower interest rates. The rush to real estate will
How is money lost? After the 2008 crisis, it was said that the world lost trillions of dollars. But since money (wealth) cannot be created or destroyed, only transferred, then where did all the money go?
Think of it this way.
Let’s imagine that you and I are the only 2 people who exist in the world.
I have a pencil. You have $1 million dollars. Yesterday, you were willing to pay me $1 million in exchange for my (very very special) pencil. So yesterday, the Global Economy was worth $2 million dollars. Since there was a pencil, worth $1 million, and of course $1 million dollars.
Today, you change your mind. Instead, you decide you didn’t want my pencil after all, and so the value of the pencil went from $1 million to $0.
What happened to the world? Well the world just lost $1 million dollars, since now all that exists is your $1 million and my worthless pencil.
So what happened in 2008? Lots of stuff. But one of the (many many) things that happened was that there used to be all of these stuff, stuff called “mortgage-backed securities”. People used to think they were worth a lot of money. Then suddenly people discovered that they were actually pieces of garbage since people were defaulting on their housing loans. They went very quickly from being worth a lot to being worth almost nothing. It had a bit of a cascading impact on the market, making lots of things which used to be worth a lot (like real estate) also crash in value.
Hence, destruction of a lot of the world’s wealth.