Ivy League Fatigue: Harvard Is Now Offering Remedial Math Courses; Tariffs Mean Higher Housing Costs; Commercial Real Estate Is in Serious Trouble
Ivy League Fatigue: Harvard Is Now Offering Remedial Math Courses
“Harvard: where the U.S. sends it's best, it's brightest and...it's remedial math students?
That seems to be the case as social media has been abuzz in recent days over the university's choice to offer a new Math course, called MA5, heading into the new year. The Harvard Crimson first wrote about the introduction of the new course back in September of last year, but discussion over the course has caught fire on X in recent days.
The course is called Math MA5, and it is an introductory course addressing gaps in students’ algebra skills, according to Brendan A. Kelly, Director of Introductory Math.
Which begs the question: why are students getting into Harvard incapable of doing algebra, which generally starts in junior high or high school?
Running alongside Math MA and MB, MA5 will have a five-day schedule, with students meeting “one of two instructors all five days” for “a variety of different activities” on Tuesdays and Thursdays, the Crimson wrote last year.
Kelly cited the Covid-19 pandemic as a factor in students' struggles, saying, “The last two years, we saw students who were in Math MA and faced a challenge that was unreasonable given the supports we had in the course.” The goal is to “create a course that really helps students step up to their aspirations.”
While structured differently, MA5 will align with Math M. “Math MA5 is actually embedded in Math M,” Kelly said. “They’ll have the same psets, they’ll have the same office hours, they’ll have MQC, they’ll take the same exams… So if you’re in MA5, you will experience Math M.”
The Crimson says that freshmen placing into Math MA or 1A had to take an additional skills check to guide enrollment recommendations.
Kelly said the department “investigated a number of different strategies” before deciding to enhance Math M rather than add a prerequisite. “What we thought was the best thing to do… was to add more time and support into MA for students who would need it.”
The goal is to help students overcome early challenges. “If the first one doesn’t go well, it can really make these lasting waves in their pathways,” Kelly said. “We want to make sure that students are on a path to success starting from their first day.”
He acknowledged the challenge of MA5’s schedule but defended its benefits. “Five days a week does make it hard for some students’ schedules… but we do really think that five days a week is — in the trade-off — it’s gonna be worth it.”
God forbid students should take a couple days a week to learn...basic algebra...at Harvard.
Harvard had previously abolished SAT scores for admission during Covid, but reinstated the measures for the Class of 2030.“
—
Tariffs Mean Higher Housing Costs
“During Trump 1.0, working for a home builder, I learned that wholesalers raise the price of lumber at the first mention of tariffs. Trump 2.0’s schizophrenic tariff policies may seem to have caused no harm yet, however, builders are no doubt already feeling the pinch. The Wall Street Journal reports “Based on initial conversations with builders, NAHB Chief Economist Robert Dietz estimates the tariffs, once fully phased in, will add anywhere from $7,500 to $10,000 to the cost of building the average American family home.”
Roughly 8 percent of materials used to construct a house are imported from other countries. The President made mention of Canadian lumber during one of his daily gatherings in the Oval Office, claiming “We don’t need Canadian lumber. We can cut our own trees down and replant them.” But, as Murray Rothbard explained,
Tariffs injure the consumers within the “protected” area, who are prevented from purchasing from more efficient competitors at a lower price. They also injure the more efficient foreign firms and the consumers of all areas, who are deprived of the advantages of geographic specialization. In a free market, the best resources will tend to be allocated to their most value-productive locations. Blocking interregional trade will force factors to obtain lower remuneration at less efficient and less value-productive tasks.
The WSJ reports that, with mortgage rates in the high 6 percent range and the spike in home prices during the last few years, builders will not be able to pass along higher input costs created by the tariffs. Tariffs are essentially taxes on imported materials and, as Rothbard wrote, cannot be passed on to consumers:
Prices are already at the highest net income levels for each firm. Any increase in cost, therefore, will have to be absorbed by the firm; it cannot be passed forward to the consumers. Put another way: the levy of a sales tax has not changed the stock already available to the consumers; that stock has already been produced.
Buyer traffic is already soft. “The lead into the crucial spring home buying season has been weak, with January sales of new single-family homes down 10.5 percent compared with December, on a seasonally adjusted annual rate,” the WSJ reported.
John Burns Research and Consulting points to another Trump policy which could raise house prices or slow construction. It will come as no surprise that,
Construction sites look ripe for immigration-enforcement raids as home builders rely heavily on unauthorized workers. Half of ceiling-tile installers and 37 percent of roofers are undocumented, according to John Burns estimates. A crackdown that shrinks the pool of workers could push up construction pay, which is already rising faster than wages in the wider economy.
All of this has slowed investment decisions as those with knowledge of Austrian Business Cycle Theory can appreciate. As the WSJ’s Carol Ryan writes, “Builders need to be sure about policies when they make investment decisions, as the timespan between buying land to completing a housing development can be three years or more.”
Although we are told that there is a severe housing shortage, “Home builders are being cautious as they already have a glut of finished inventory they are struggling to sell,” Ryan writes.
These policies will not just distort the “for sale” sale housing market but the rental market as well. “The real story on tariffs and immigration is less supply, which is favorable for rent growth,” Cedrik Lachance, director of research at real estate analytics firm Green Street told Ms. Ryan.
Writing on mises.org, Richard Martin writes, “Bastiat’s lesson of the seen and unseen reminds us that the true cost of protectionism lies beyond what is immediately visible. By focusing on short-term benefits, countries risk long-term economic stagnation and structural damage.”
For all the political rhetoric about building “affordable housing,” the reality is housing prices will only go up.“
—
Commercial Real Estate Is in Serious Trouble
“While the financial press is attempting to cover Trump’s frenetic bipolar tariff policy, the ponderous commercial real estate market continues to deteriorate. Bisnow.com reports, citing CoStar, “US banks reported delinquencies hit 1.57 percent at the end of last year, a rate not seen since the fourth quarter of 2014.”
Putting a number to the percentage, “The 1.57 percent delinquency percentage means more than $47.1B of loans would have been delinquent at the end of the year,” writes Billy Wadsack for Bisnow’s Dallas-Fort Worth bureau. That’s an 88 percent increase from a decade ago.
Delinquencies in CMBS (Commercial Mortgage-Backed Securities) are setting multi-year highs with $38B in arrears at year-end 2024, a 41 percent increase from the previous year end.
In the face of troubling news, those who work in real estate are taking a rosy view, as usual. James Robertson, Jr. writes in the latest Grant’s Interest Rate Observer, “Optimism in the industry is the highest it has been in eight years.” This industry he calls “illiquid and slow-moving” with cycles that can “drag on for years.”
There has been little transaction volume and sellers have held tightly to the valuations and cap rates experienced during days of ZIRP. Likewise, bankers have extended and pretended, hoping the never-before-seen low rates will miraculously return to lift all boats (and buildings).
Fitch Ratings’s Melissa Che told Robertson, “As more lower-quality assets, some of which have significantly deteriorated in performance, come to market and trade at relatively low prices, this may trigger an overall reset and further price discovery across various property quality segments.”
Distressed market sales nearly doubled to 6 percent in last year’s fourth quarter, according to Newmark Group, Inc. Banks are growing more impatient with loan extensions and modifications raising the amount of 2025 debt maturities to $957 billion from $659 billion from 2022. Newmark believes a third of CMBS loans fail to cover debt services.
Robertson focuses on bridge loans (REBLs) whose issuance ballooned in 2021 to $45 billion from less than $9 billion the year prior. Artis Shepherd of Patterson Capital, LLC told Robertson, “Bridge lending shifted around this time into a fairly aggressive product. Some lenders were offering credit at 80 percent-85 percent loan-to-value ratios and underwriting loans based upon proforma rather than actual net operating income.”
Shepherd goes on to explain that 2021 bridge lender’s loose underwriting included debt service coverage of just 1.0 or 1.05 to pro forma numbers rather than the traditional 1.25 DCR (Debt Service Coverage Ratio). This has come back to bite lenders and REITs.
Borrowers whose loans are maturing must confront interest rates which are 300 bps higher than what they are paying. If they are paying at all. In Robertson’s piece he gives the example of the Starbucks Seattle HQ building. The current rate is 2.3 percent. However, the loan matures in August and Harsh Hemnani of Greenstreet told Robertson “If spreads and rates stay the same, it’s going to be somewhere around 5.5 percent. The owners will have to eat the difference. I think that pain is definitely going to happen.”
If Starbucks is your tenant, you take the hit. Owners with lesser quality tenants (or none at all) will likely walk away. Office properties are not the only problem. Overbuilding of multi-family projects has put pressure on rents. Community banks hold $629.7 billion in apartment loans with $6.1 billion being 30 days or more delinquent. This is the most since 2012 the tail-end of the Great Financial Crisis.
Researchers at the NY Fed are on high alert concerning the coming CRE maturity wall, believing banks are undercapitalized. “For example, regulators, credit rating agencies and providers of funding might scrutinize bank maturity extensions more closely, thus forcing banks to accept defaults rather than granting more maturity extensions.”
These defaults could lead to deposit runs and/or “trigger a wave of foreclosures or sales of loans in secondary markets, imposing fire-sale externalities on other intermediaries by depressing the market valuations of CRE debt and underlying CRE properties.”
Wall Street has a close eye on the banks with the Regional Bank ETF (KRE) having fallen 18 percent since hitting a high around last Thanksgiving. The President says his favorite word is “tariff.” As an ex-real estate developer, his least favorite is likely “maturity.”
—