A real estate investor who made a fortune more than a decade ago by shorting subprime mortgages told CNBC Friday that he believes the current housing market is in a bubble.
‘Absolutely. I think we’re in an omni bubble. How long does it take? It depends on. How long do you keep the tap open and let this money flow? ‘ billionaire Jeff Greene said about “Power Lunch.”
“There’s just so much money on corporate balance sheets … and people’s balance sheets and their bank accounts that it just makes the prices of everything higher, but at some point this has to stop,” Greene said.
The housing market was one of the strongest parts of the US economy during the coronavirus pandemic, which also put millions of people out of work and triggered a recession.
Mortgage rates have been historically low and the rise of remote working has given Americans more flexibility in their living environment. House prices have soared as strong demand clashed with low supply.
Greene isn’t the first to suggest that the market is overheating, though his earlier bet against the housing market in the mid-2000s makes his comments notable Friday. Recently Google searched for “When is the housing market going to crash?” have increased dramatically.
“When you see prices rise as they have risen, you have to ask, why did this happen?” Greene said the robust monetary and fiscal policy response to the pandemic played a key role.
“I think it happened 80% because of the extraordinary amount of liquidity in the economy, 20% because of the fundamentals,” he said. The investor also pointed to rising wood costs, suggesting significant inflation will occur in various parts of the economy as it recovers from the crisis.
“I think we’re going to get inflation that no one is predicting … whatever, and it’s going to have to lead to much higher interest rates and that’s going to slow all of these markets,” Greene said.
Jeff Greene
Cameron Costa | CNBC
Not everyone shares Greene’s view that the housing market is in a bubble, even though they think real estate values could undergo a brief correction. A crucial reason some people say this boom is different is because mortgage acceptance standards have improved as a result of the previous crash.
Others have a different opinion from Greene about the cause of the rise in demand. “I know there is a lot of concern about potential speculation, but that’s not what’s happening in the market today,” Ryan Gorman, CEO of Coldwell Banker Real Estate, told CNBC on Tuesday.
Gorman’s company – which is owned by Realogy – recently conducted a study examining why people are considering selling a home.
“About 40% are scaling up, the most classic reason people want to move. About 30% see an increase in their home, so they say, ‘Maybe I want to make money with that value. My retirement plans,” Gorman explained about ‘Power Lunch’.
“You still have about 30% saying, ‘If I can work remotely at least some of the time, maybe all the time, then maybe I want to live somewhere else than where I live now, maybe even somewhere else. more affordable, “said Gorman.” So while house prices are on the rise, affordability is a relative term and we see some people taking advantage of it.