A real estate investor who made a fortune short of subprime mortgages more than a decade ago told CNBC on Friday it believed the current real estate market was 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 faucet open and this money running?” Billionaire Jeff Greene said on “Power Lunch”.
“There’s just so much money on corporate balance sheets … and on people’s balance sheets and in their bank accounts that it only increases the price of everything higher, but at some point it 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 left millions of people jobless and sparked a recession.
Mortgage rates have been historically low, and the rise in remote working has given Americans more flexibility in where they live. Property prices have risen as strong demand collided with low supply.
Greene isn’t the first person to claim the market has overheated, although his previous bet against the mid-2000s real estate market makes his comments on Friday noteworthy. Recently, Google did a search for “When is the real estate market going to collapse?” have shifted dramatically.
“When you see prices go up as they go up, you have to ask yourself: why did this happen?” Greene said the robust monetary and fiscal response to the pandemic played a key role.
“I think 80% of this was because of the extraordinary liquidity in the economy and 20% because of fundamentals,” he said. The investor also pointed to the rising cost of sawn timber, suggesting that different parts of the economy will see significant inflation as it recovers from the crisis.
“I think we’re going to have inflation that nobody … is predicting, and it’s going to have to lead to much higher interest rates, and that’s going to slow down all of these markets,” Greene said.
Cameron Costa | CNBC
Not everyone shares Greene’s view that the real estate market is in a bubble, even though they think real estate values could see a brief correction. A big reason some people say this boom is different is that mortgage underwriting standards have improved because of the previous crash.
Others see it differently than Greene, which is what is causing the surge in demand. “I know there is great concern about possible speculation, but that’s really not what is happening in the market today,” Ryan Gorman, CEO of Coldwell Banker Real Estate, told CNBC on Tuesday.
Gorman’s company, owned by Realogy, recently conducted a survey that looked at why people are considering selling a home.
“About 40% is upsizing, the most classic reason people want to move. About 30% see an increase in value in their home, so they say, ‘Maybe I want to monetize that value. Maybe my retirement plans move forward,” 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, then maybe I want to live somewhere different from now, maybe somewhere a little cheaper,” said Gorman. “As home prices rise, affordability is a relative term and we are seeing some people benefit from it.”