A real estate investor who made a fortune short-circuiting subprime mortgages more than a decade ago told CNBC on Friday that he believes the current real estate market is in a bubble.
“Absolutely. I think we’re in an omni bubble. How long does it take? It depends. How long do you keep the tap open and this money running?” said billionaire Jeff Greene at Power Lunch.
“There’s so much money in corporate balance sheets … and people’s balance sheets and their bank accounts that it’s just higher prices, but at some point, that has to stop,” Greene said.
The real estate market was one of the strongest parts of the US economy during the coronavirus pandemic, which also pulled millions out of work and triggered a recession.
Mortgage rates have historically been low, and the increase in long-term work has given Americans more flexibility in where they live. House prices have risen as strong demand has faced low supply.
Greene is not the first person to suggest that the market is overheating, although his previous bet against the real estate market in the mid-2000s makes his comments notable on Friday. Recently, Google searched “When will the real estate market collapse?” they have grown dramatically.
“When you see prices go up as they go up, you have to ask yourself, ‘Why did that happen?’ Greene said supporting a robust monetary and fiscal policy response to the pandemic played a key role.
“My opinion is that 80% happened because of the extraordinary amount of liquidity in the economy, 20% because of the fundamentals,” he said. The investor also pointed to rising costs for timber, suggesting that significant inflation will occur in different parts of the economy as it recovers from the crisis.
“I think we will have inflation that no one forecasts, and it will have to lead to much higher interest rates and that will slow down all these markets,” Greene said.
Jeff Greene
Cameron Costa | CNBC
Not everyone shares Greene’s view that the real estate market is in a bubble, even though they believe real estate may experience a brief correction. One of the key reasons why some people say this boom is different is that mortgage underwriting standards have improved due to the previous collapse.
Others have a different view of Greene on what is driving demand growth. “I know there are a lot of concerns about potential speculation, but that’s not what’s happening in the market today,” Coldwell Banker real estate director Ryan Gorman told CNBC on Tuesday.
Gorman’s company – owned by Realogy – recently conducted a survey focused on why people are thinking of selling a house.
“About 40% are growing, the most classic reason why people are looking to move. About 30% see an increase in value in their home, so they say, “Maybe I want to monetize that value. Maybe it goes further in my retirement plans, “Gorman told Power Lunch.
“You still have about 30% who say, ‘If I’m able to work remotely at least part of the time, maybe all the time, then maybe I want to live somewhere different from where I live today, maybe even somewhere a little more affordable, “Gorman said.” So as housing prices rise, accessibility is a relative term and we see that some people are taking advantage of that. “