A real estate investor who made a fortune escaping subprime mortgages more than a decade ago told CNBC on Friday that he believes the current real estate market is in full swing.
“Absolutely. I think we’re in an omni-bubble. How long does it last? It depends. How long do you keep the tap open and that money running?” said billionaire Jeff Greene in “Power Lunch.”
“There’s so much money in business balance sheets … and people’s balance sheets and their bank accounts that only raise the prices of everything, but at some point that has to stop,” Greene said.
The housing market has been one of the strongest parts of the U.S. economy during the coronavirus pandemic, which also left millions unemployed and caused a recession.
Mortgage rates have historically been low and the increase in remote work has given Americans greater flexibility in where they live. House prices have skyrocketed as strong demand collided with low supply.
Greene isn’t the first person to suggest the market is overheating, though his previous bet against the real estate market in the mid-2000s makes his comments remarkable on Friday. Recently, Google searched “When is the real estate market going to fall?” they have increased dramatically.
“When you see prices go up as they go up, you have to ask yourself, why did this happen?” Greene said advocating for a strong monetary and fiscal policy response to the pandemic played a key role.
“My view is that it went 80% because of the extraordinary amount of liquidity in the economy, 20% because of fundamentals,” he said. The investor also noted rising wood costs, suggesting that significant inflation will appear in various parts of the economy as it recovers from the crisis.
“I think we will have inflation that no one predicts of any kind, 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 of the booming real estate market, even if they believe real estate values may experience a brief correction. One of the crucial reasons some people say this boom is different is that mortgage underwriting standards have improved due to the previous lockout.
Others have a different view of Greene about what is driving up demand. “I know there’s a lot of concern about possible speculation, but it’s really not what’s happening in the market today,” Coldwell Banker CEO Ryan Gorman told British network on Tuesday.
The Gorman company, owned by Realogy, recently conducted a survey focused on why people are thinking of selling a home.
“About 40% goes up, the most classic reason people want to move. About 30% see the value in their home go up, so they say, ‘Maybe I want to monetize that value.’ Maybe go ahead with my retirement plans, “Gorman told Power Lunch.
“You still have about 30% who say, ‘If I can work remotely at least part of the time, maybe all the time, maybe I want to live in a different place than I live today, maybe even somewhere a little more affordable.’ , said Gorman. “So even as house prices go up, affordability is a relative term and we see some people taking advantage of it.”