OCT NIBJ: 'Like tears in rain'

This week’s sobering news headlines included the resignation of a researcher at the hyperscaler Artificial Intelligence firm Anthropic, who warned the technology risks wiping out human civilization.

“This is not a marketing stunt,” said Jacob Coxon on X. “Accepting this race and entering the ‘endgame’ is a hubristic gamble that should not be launched from a private company’s Slack. Attempting to speedrun alignment should require extraordinary confidence that there are no better trajectories available.”

Coxon was concerned the AI industry was ”gambling with our lives” by designing AI with self-improving superintelligence. A sympathetic senior colleague at Anthropic agreed, but downplayed the risk to “about 10%”.

Well, now that the AI evil geniuses have achieved singularity, that’s comforting it’s only a ten percent chance we’re all gonna die by AI.  My original idea was to write about AI improving the practice of real estate, but as I did the deep dive research, I mainly discovered alarming stuff.  Rogue bots hacking into other AI systems and trying to cover their tracks, actually lying (like humans!).  

And an athletic event recently held in China where 2,000 AI robots competed in various track and field events, notably eclipsing Usain Bolt’s sprint records. How long before they are everywhere, doing everything?   I may give up real estate to be a blade runner, slang for robot hunter. 

“I’ve seen things you people wouldn’t believe… All those moments will be lost in time… like tears in rain… Time to die.”  The last line from replicant Roy Batty from the prescient film Blade Runner.

But back to the real world, Treasury Secretary Scott Bessent’s strategy of a $6 billion buyback for longer term bonds to improve liquidity in these securities has had the opposite effect as the Ten Year Treasury hit almost 5% and mortgage rates jumped to 7% (as of September 10).    Bessent’s strategy is like using your credit card to pay your mortgage, papering over the real problem.  He also orchestrated programs to prop up the currencies for Argentina and Japan, keeping them for now from selling some of their US Treasury holdings to support their falling currencies. 

The challenges the US Treasury market face are the insatiable demand for capital from the AI industry, normal corporate borrowing debt markets, and foreign government new issuances. Overlay that with the $40 trillion US deficit, an economy potentially in recession, lurking inflation (diesel at $6 a gallon), and political instability (the midterm elections, the Iran War etc.).

Investors are nervous about the future (both short term and long term), and are therefore demanding a higher risk premium for debt. How are these turbulent forces at the national and global level affecting local real estate? The most obvious metric is the number of listings that are now available to buyers, across all price ranges. Whereas a few years ago, there were maybe half a dozen listings in a given price range, now there are twenty.

Initial listing prices are still aggressive, but as the days-on-market grow past 60 days with no activity, there are price reductions. The price reductions aren’t enough to stimulate the shrinking pool of buyer prospects though: it has been a slow year for closed transactions. 

The price increases that created a massive equity build-up over the past six or seven years were not due to the inherent value of housing: the price increases were driven by cheap financing. Now financing is acting in the reverse, as a drag on momentum.  In the housing equation, the weak variable is price, it is the softest issue and it will begin to erode more significantly, especially in the face of withering demand. Eventually this price softening will impact the other variables, with lumber, labor, and other material costs declining. This will take time to play out, but in a perverse twist, an economic recession may help resolve this intractable housing market.

"Blade Runner" is a 1982 science fiction film directed by Ridley Scott from a screenplay by Hampton Fancher and David Peoples. Starring Harrison Ford, Rutger Hauer, Sean Young, and Edward James Olmos, it is an adaptation of the 1968 novel "Do Androids Dream of Electric Sheep?" by Philip K. Dick. The film is set in a dystopian future Los Angeles of 2019, in which synthetic humans known as replicants are bio-engineered by the powerful Tyrell Corporation to work on space colonies. When a fugitive group of advanced replicants led by Roy Batty (Hauer) escapes back to Earth, former cop Rick Deckard (Ford) is recalled to hunt them down. 

Singularity is a physics term: the center of a black hole. It is that point when artificial intelligence becomes smarter than humans.  

Raphael Barta is an associate broker with a practice in residential, vacant land, and commercial/investment properties. He can be reached at [email protected].