WASHINGTON, DC–The Federal Reserve has said on a number ofoccasions that asset valuations, including in the commercial realestate sector, are inflated. It did it again on Friday in itsMonetary Policy report that it released to Congress. Itwrote:

Valuation pressures continue to be elevated across a range ofasset classes, including equities and commercial real estate. Overthe second half of 2017, valuation pressures edged up from alreadyelevated levels. In general, valuations are higher than would beexpected based solely on the current level of longer-term Treasuryyields.

This has been a theme that has appeared regularly in Fedspeeches, reports and interviews. Shortly before she left,former Fed Chair Janet Yellen told CBSthat US stocks and commercial real estate prices are elevated.Commercial real estate prices are currently “quite high relative torents. Now, is that a bubble or is it too high? And there it's veryhard to tell. But it is a source of some concern that assetvaluations are so high,” she said.

The Monetary Policy report follows last week's release of theFederal Reserve's minutes from its January meeting. Language from theminutes suggested the Fed would not be adverse to raising ratesmore than the expected three times this year. When it doesvaluations will likely reconfigure.

A Buyer-Seller Disconnect

It is also important to note that the Fed has signaled that therate increases — however many there are — will happen gradually,which likely means that any influence on valuations will be subtle.In the meantime there are many effects that an inflated valuationof real estate assets can have on the market and the immediateimpact has been a disconnect between buyers and sellers on pricing— a disconnect that has been underway for some time.