Key Words: ‘I think we’re in the final innings.’ Pimco’s Kiesel thinks the housing market has hit its top

Mark Kiesel is thinking of selling his California home and becoming a renter. Families looking to buy a home make want to take heed.

Kiesel, who serves as global credit chief investment officer at Pimco, warned in an interview with Bloomberg that his “long-term 25-year charts” that guide his decisions to buy and sell real estate are “flashing orange right now.”

“‘I think we’re in the final innings.’”

— Pimco’s Mark Kiesel on the housing market’s strength

Kiesel notably called a top to the last housing bubble, selling his home in Newport Beach in May 2006. At the time, he called the housing market “the next Nasdaq bubble.” He waited until May 2012 to buy a home again, just home prices hit their nadir.

According to Bloomberg, he purchased his home in Orange County for $2.9 million back then. Today, its value is estimated to be around $5.5 million, according to Redfin

Kiesel suggested that buying a home today wouldn’t net more than a 2% return; he didn’t indicate over what time period he thought that return would happen. “I can find other things I can make money on other than a house,” Kiesel said.

Kiesel’s stance differs from that of the company he works for. In a March note, Pimco analysts argued that the current housing cycle is different from the last one, because the broader housing industry was so heavily scarred by the last crash. “U.S. housing should remain supported over the long term by two pillars: a secular shortage of housing units and resilient, delevered borrowers,” they wrote.

Instead of a housing bust, Pimco analysts expect that home-price growth will slow in response to affordability challenges and rising interest rates. The average rate on the 30-year fixed-rate mortgage was 5.1% as of Thursday, close to a 12-year high, according to Freddie Mac
In time, the Pimco analysts anticipate that the low supply of homes for sale will recover, providing buyers with more options and creating a more balanced market.

Pimco’s view is shared by many other economists who would argue that stronger lending standards prevent against the type of behavior that contributed to the last crash. But some analysts are bearish on the market. Ian Shepherdson, chief economist at Pantheon Macroeconomics, suggested Wednesday that home sales could drop by more than 20% in the coming months, and fall even lower still.

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