A weekend topic starting with Fortune. "Jim Grant has been tracking the ins and outs of Federal Reserve policy and its effects on the economy and markets in his famed newsletter, Grant’s Interest Rate Observer, for over 40 years. After roughly a decade of near-zero interest rates, he argues, the U.S. economy developed a debt problem—one likely to end badly now that higher interest rates are here to stay. The inevitable fallout from the end of the 'free money era' has yet to be felt fully, Grant warns. Grant pointed to so-called 'zombie companies' as one example of the issues that lenders may face."

"Now, many of these firms are facing pressure as the economy slows and borrowing costs rise. That means they may not be able to repay their lenders. 'It could be that the accumulation of errors in lending and an allocation of credit that were brought on by the invitation to lend indiscriminately—that is to say the 0% rate regime—was an open invitation to overdo it in credit,' Grant told Fortune, adding that 'assets may face the consequences of that yet.' Take WeWork as an example."

"Grant takes a historical reading of monetary policy, and argues we’re in for a generation of rising rates, with some volatility in between. 'The phrase would be higher for much, much, much, much longer—but we have to underscore and italicize the conditional—if past is prologue,' he told Fortune. Grant noted that between 1981 and 2023, barring a few brief blips, interest rates continuously trended down. And in the forty years before that, they had essentially trended—again, with a few exceptions—in the opposite direction."

"'It is the historical track record, it is the pattern, that interest rates exhibit a tendency to trend over generation-long intervals,' Grant explained, arguing we may have entered a 'new regime.' 'We seem to have hit some major point of demarcation with interest rates in 2020 and ‘21,' he added. Based on history, he said, this new regime should last 40 years. Still, Grant clarified that the generation-long uptick likely won’t be a straight line up. If a recession hits, there could be a 'substantial,' although temporary, pullback in interest rates."

"If Grant is right, that would mean an era of low economic growth, relatively high inflation, and high interest rates—an economic combination that’s often labeled stagflation—may lie ahead. And that’s not exactly a recipe for investing success. It could even be an environment where corporate defaults rise, with the credit markets paying the overdue price of the free-money era."

The Urbanist in Washington. "When Issaquah instituted its development moratorium in 2016, the city’s average single family home price was around $650,000 and the average condo sold for less than $300,000, according to Zillow estimates. Single family home prices have doubled since then, peaking at $1.4 million in 2022 and coming down slightly since then. Average condo prices peaked just shy of $550,000 during the pandemic. These price spikes are typical for the region and especially the Eastside, which has grown an increasingly exclusive enclave in recent years. People who were lucky enough to buy before the boom accrued incredible housing wealth."

The Star Tribune in Minnesota. "A new survey by the Federal Reserve Bank of Minneapolis shows deepening concerns about the health of residential and commercial construction companies in the Fed's six-state region. Ron Wirtz, a Minneapolis Fed Regional Outreach director who tracks business conditions for the construction industry, highlighted some notable changes since previous surveys, most notably that the situation for the residential sector is worsening by a 'sizable margin' and that the industrial and infrastructure sectors are also showing signs of weakness as the number of new projects wanes and backlogs shrink."

"The outlook is most gloomy for homebuilders who are concerned that new work may soon run out, with 67% saying their project backlog was waning and 60% saying they were receiving fewer requests for proposals from private clients. Revenue was down for 61% of the respondents in the residential sector."

Newsweek on California. "The median price of condos in downtown San Francisco, one of the most overvalued cities in America during the pandemic boom, has now plunged to the same levels they were a decade ago, according to recent data. A chart updated to November 2023 and released by Compass found that the price of condos in downtown San Francisco are now the same as they were in January 2014—just about over the $800,000 mark. 'The greater downtown/SoMa/Civic-Center condo market has been much more negatively affected by a number of economic, demographic and social factors impacting supply and demand than condo markets in other city districts,' Compass wrote in its report."

"As mentioned by the company, downtown San Francisco is the heart of large projects, new condo constructions, office buildings, and high-tech employment. But many of these office buildings have remained largely empty in the aftermath of the pandemic, as tech workers no longer felt the need to be physically in the office—or live close to their workplace. For this and other reasons, including the impossible peaks reached by home prices in the city during the pandemic years, San Francisco was hit particularly hard by the housing market correction which affected the entire country."

Bisnow on California. "Coretrust Capital Partners' Pasarroyo office building at 251 South Lake Ave. in Pasadena will to go to a foreclosure auction Dec. 20, according to a notice of trustee’s sale filed with the Los Angeles County Recorder’s office. Coretrust Capital Partners managing principal John Sischo told Bisnow the firm tried to refinance the property for about two years to no avail. 'The capital markets are not in existence to take out a refinance for an office building, no matter how great the property is,' Sischo said. 'It’s not there.'"

The Real Deal. "So you want to buy an apartment building in Texas. Until recently, that would make you just another face in the crowd of buyers flocking to the Lone Star State’s booming multifamily market. But a combination of expensive debt, cautious lenders and pricing paralysis has thinned the crowd significantly in recent months. Uncertainty across the market on pricing, interest rates and costs has ground multifamily sales to a halt, emptying out what was once a crowded dance floor. The few investors left boogying can pick up valuable properties at a relatively low basis, if they can make the money work. These days, that’s a big 'if.'"

"'It’s mainly small and mid-sized private equity groups, both local and out of state,' who already have money set aside, or can tap a small, close-knit group of investors with deep pockets, said Al Silva, a multifamily investment sales expert at Marcus & Millichap. Those firms can come to the table and close in 45 days. There’s no need to travel across the country raising money — several deals that have closed in Texas this year went not to the highest bidder, but to the one with money in hand. 'Sellers have realized there’s no knight in shining armor who’s going to come in and pay 20 percent above market,' Silva said."

"Distress opportunities are starting to show, but industry experts think the larger meltdown is yet to come. The last six weeks of the year are usually slow for investment sales. Some brokers are 'buying' listings by promising higher prices than they can get. But once assets really start to hit the market in January, many won’t be seeking a profit — they’ll simply be wondering how much equity they can save."

The Globe and Mail. "A recent immigrant who purchased his first property in Canada has seen the dark side of B.C.’s presale market, and what can happen when you purchase a property years before it is built. Sudip Sehgall purchased a townhouse in South Surrey in December, 2021, from StreetSide Developments, owned by Qualico, a very large development company that builds master-planned communities in Western Canada. The purchase price for his townhouse at the Boroughs complex was $819,900 plus GST, with a 10-per-cent deposit. Mr. Sehgall paid the deposit of $81,990 on the home, with an agreed upon completion date of July 31, 2023, at which point he’d owe the balance as well as property transfer tax. Mr. Sehgall used his savings as well as a loan from his father in India to pay for the deposit. He owned a property in New Delhi, which he planned to sell to pay for the remainder of the townhouse, and he had two years to do it."

"However, once he put his property in New Delhi on the market, it did not sell. New government regulations that changed what could be built on the empty lot made it less desirable to investors, Mr. Sehgall says. He started to panic as the completion date approached and knew he wouldn’t obtain the money in time. His contract with StreetSide included a provision that he may be allowed to assign the presale contract to another buyer – with the developer’s permission. Although he wouldn’t own a home, he consoled himself that he would get back his deposit. He says he found interested parties who wanted to take over the contract. But when he contacted the developer for permission to enter into an assignment sale, to his shock, the answer was no."

"Because he could not complete the sale by Aug. 3, Mr. Sehgall received a letter from the developer’s lawyer that he had forfeited his $81,990 deposit. This amounted to all his savings and some money he owed his 88-year-old father, a retired military officer, he says. Today, Mr. Sehgall says he lives in a basement suite in Surrey on disability after an accident, and he cannot afford the high cost of lawyer fees."

"Real estate lawyer Kenneth Pazder says people often boast about the money they’ve made buying a presale property in a busy market. But when the market goes south, they discover the contracts are heavily weighted in favour of the developer. Unlike tenant protection laws, there’s little recourse for the buyer, and taking a developer to court can be very costly. It’s also standard, he says, that the option to assign a presale contract is at the developer’s discretion. 'I’ve had people, they tried to assign a contract and the developer said, ‘no.’ The prices are dropping and each month they drop more, and they won’t let him assign the contract but they can’t close. … Sometimes they say we have units to sell and we don’t want you competing.'"

"Long-time developer John D’Eathe, who’s helped build more than $5 billion in residential properties in Asia and Canada, has seen a few drops in the market. 'The market has definitely changed,' he says. 'For most of the builders now, you will find the program they had for the next five years has been reduced, because nobody is quite sure what is going to happen. They haven’t necessarily dropped their projects, but they are delaying them, which makes sense because they can’t get presales now, or they aren’t sure what the market is, and if it will come back. There are lots of stories around town of developers struggling to meet this situation.'"

The Toronto Sun in Canada. "More of the same. That would be the simplest way to describe how the Toronto real estate market fared in the month of November, based on stats released last week by the Toronto Regional Real Estate Board in their Market Watch report. The reality is that prices are absolutely coming down out there. In some cases, shockingly – with some recent sales of good properties in good neighbourhoods (that would have been a bun fight jut 18 months ago) coming in at pre-pandemic prices. But this is to be expected. With so few truly engaged buyers out there resulting in so few showings and so few purchases, if a seller needs to sell they need to price accordingly or, at the very least, be willing to listen when the market speaks. Thus, some of the sale prices we are seeing."