I don’t care what color he’s seeing, if he sells his tony golf-course estate today and thinks he will buy it back later for less, he will be in for a rude awakening. Without foreclosures (now mostly outlawed in California) causing banks to give away homes, there won’t be any more downturns or cycles. But for those who agree with him, yes – please sell!
Bond manager Mark Kiesel sold his California home in 2006, when he presciently predicted the housing bubble would pop. He bought again in 2012, after U.S. prices fell more than 30% and found a floor.
Now, after a record surge in prices, Kiesel says the time to sell is once again at hand.
Sky-high values, soaring interest rates and other costs of homeownership — maintenance, property taxes and utilities — dampen prospects for future appreciation, according to Kiesel, chief investment officer for global credit at Pacific Investment Management Co. He’s weighing putting his Orange County house on the market and becoming a renter rather than an owner.
“I can look at my long-term 25-year charts and they tell me when to buy and sell and they’re flashing orange right now,” Kiesel, 52, said during an interview at Pimco’s Newport Beach, California, headquarters. “I think we’re in the final innings.”
Home prices soared almost 20% in the 12 months through February, according to the S&P CoreLogic Case-Shiller Index, as pandemic moves, low borrowing costs and a dearth of inventory spurred heated competition for housing. But the market is now facing the fastest rise in mortgage rates in decades as the Federal Reserve works to tamp down inflation. The average 30-year rate is now 5.1%, close to a 12-year high, Freddie Mac data show.
Home sales contracts, a leading indicator, fell for the fifth consecutive month in March as rising borrowing costs added to affordability pressures, the National Association of Realtors reported on Wednesday.
Kiesel’s possible sale is a personal move and not a forecast of a crash by Pimco, which in March put out a note predicting “No Bust After the Boom” following years of housing undersupply. “Estimates of this secular shortage range from two to five million houses,” according to the authors.
But Kiesel’s past personal decisions have proved prophetic.
He sold his Newport Beach house in May 2006, calling housing “the next Nasdaq bubble.” Home prices peaked that year before going on to plunge, triggering the global financial crisis.
“It’s not just houses that will be for sale,” Kiesel said in a June 2006 interview. “You’re going to see financial assets for sale over time, and ultimately corporate bonds.”
Then in May 2012, Kiesel decided it was time to own again, buying a golf course-adjacent home.
“For those of you renting or on the sidelines, I recommend you at least consider getting ‘back in’ and buying a house,” he wrote in a credit market note. “The future is hard to predict, but U.S. housing is healing and is probably close to a bottom.”
U.S. housing prices have more than doubled in the past decade and the house Kiesel bought for $2.9 million in 2012 now has an estimated value of $5.5 million, according to Redfin Corp.
Buying a home in today’s market would likely yield about a 2% return, Kiesel said. He considers his home as an investment, refusing to form an emotional attachment to his property.
“It’s only a good investment if you buy it the right time,” he said. “If I were to buy a house today, I would probably get max 2% return on it. And I can find other things I can make money on other than a house.”
The real estate cycle used to be ten years in length.
In 1997 the 2 out of 5 yr tax exemption was passed, which propped up the market for a few extra years. Then Countrywide introduced short-term ARMs, then EZ-doc, then No-doc, then neg-am, then neg-am no-doc as the last gasp to blow the bubble larger.
Bernanke told the banks to stop foreclosing, and they changed their accounting rules – boom, no more cycles.
2012-present UP UP UP
Yeah buyers last few years have been supremely well qualified. No way there’s a repeat. Still we got a decade’s worth of appreciation in 18 months, so looking forward to a bunch of calmer years on the horizon.
This old-school guy is applying his previous principles to the current situation, and not looking outside the box. He’s going to be wrong about this too (hat tip Joel):
Mortgage Rates Hover at Five Percent
(per Freddie Mac, http://www.freddiemac.com/pmms/)
April 28, 2022
“The combination of swift home price growth and the fastest mortgage rate increase in over forty years is finally affecting purchase demand. Homebuyers navigating the current environment are coping in a variety of ways, including switching to adjustable-rate mortgages, moving away from expensive coastal cities, and looking to more affordable suburbs. We expect the decline in demand to soften home price growth to a more sustainable pace later this year.”
One can never duplicate previous events exactly. There will be a black swan event that no one can predict. S&L Crisis in the late 1980s and early 1990s. Liquidity Crisis and Mortgage meltdown in 2008-09. Yes, foreclosure rules have changed and REOs that is the curve ball.
What’s next? Time will tell. Will the government become the next largest landlord and not Blackstone? Will Blackstone sell its SFR portfolio to the government or turn them into Section 8 housing? Look what happened to Motels with Gavin’s Project Room Key in California. Round and round we go, where it stops nobody knows.
All waves eventually hit the beach and close out. Don’t bust a fin box on the sand; you can ruin your board. Cash is king and equity is queen eventually. Bells are not rung at the top and bottom of markets and never mistake past luck for brains. All markets have a keen way of humbling people and this RE market is a perfect example. This market has defied all logic.
Jim, I cannot take credit for the above excerpt you posted, it is a quote from Freddie Mac that I include in my weekly rate update email.
Another guy searching for answers from his old box of tricks:
“Home prices simply can’t continue to go up as rapidly as they have for the past few years,” said Rick Sharga, executive vice president of market intelligence for ATTOM. “The combination of higher prices, rising mortgage rates, and the highest rates of inflation in 40 years may be pricing some prospective buyers out of the market, which means we may begin to see lower sales numbers. Ultimately, as affordability worsens, price appreciation should slow down, and we may even see modest price corrections in some markets.”
Jim, I cannot take credit for the above excerpt you posted
You get credit for supplying it!
My wife and I want to cash out and sell our house for 2 million in Encinitas but we cannot find a place better than this so we are staying put. If it hits $5 million, we will let it go with the furniture and beloved pets though…. But hell, even Fountain Hills AZ where I used to be able to get a home for $500k are now $2.5 million which is total bs. So we sit tight and just Airbnb to fun places in our retirement.
$5 million? Great – I’ll check back next summer. It should be there by then! 🙂
If I bought my house today, the monthly payment (PITI) would be at least 3x as much. What I’m paying now is a great deal, so why give it up?
You gotta leave town to make it worth it, AND you have to pay capital-gains tax on your net profit (which will be about 1/3 of your net profit above your tax-exempt $500,000 if married).
At least 90% of the homeowners in North San Diego County Coastal region will never consider it.
We are going to be down to estate sales, divorces, and people who run out of money and don’t have any other choices and don’t want a reverse mortgage.
It is a little easier on people who lived elsewhere to go back home, or to friendly confines.
But if you grew up here, forget about it.
It wasn’t this way two years ago. And it’s paying the capital-gains tax that was the final blow.
I know a lot of home owners in coastal North county who perceive they have only two options for exiting their primary home…1) die 2) move out of state or at least away from coast and rent their coastal residence…however, doing so results in 1) death 2) not living in the most incredible place to live on the planet…I have three homes across street and one on either side…in 25 years of living here there have been 2 die in house, heirs develop or sell, 1 living with grown children who are now 30-40 years old still living in house, 1 93 year old whose heirs will sell or develop and 1 sale 10 years ago, purchaser now adding two homes to lot…