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But he also acknowledged his own mistakes, noting that interest rates have in fact not risen as he has predicted: “I don’t know when it will happen honestly, but it is 100 percent sure that rates will go up from here. I will be right eventually.”
He also warned on capitalization rates, saying that investors who are accepting very low yields, even below 3 percent in the Bay Area, are taking unwarranted risk. “You could argue that relative to other things, real estate looks good, but the worry I have is that cap rates only go up from here and the question is, how much?”
Unlike some, he also said he is not worried about the aggressive apartment construction based in large measure on an anticipated burst of household creation in the next five years. Grown children forced to move back home will leave parents, he said, and more compellingly 4.2 million Americans a year will attain age 18 over the decade as the millennials grow up. That is about a million more new 18-year-olds a year in the United States than have been being minted in the last two decades, he said.
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