Mortgage rates are soaring. And for many prospective home buyers, especially first-time purchasers, the combination of rising home loan costs and still sky-high real estate prices make the idea of purchasing a home prohibitively expensive…if not impossible.
But don’t tell that to the CEO of real estate developer Howard Hughes Corp. In an interview with CNN Business, David O’Reilly said that he’s not too worried about another housing market crash and explains why.
“We probably are technically in a housing recession,” he said, referring to a term used to describe a decline in home sales for at least six months. “We are clearly in a downturn, but this is much different.”
O’Reilly said that in the years leading up to the 2008 collapses of Bear Stearns, Lehman Brothers, Washington Mutual and others, there was a glut of new homes that had been built.
“We had a massive oversupply when Lehman hit the wall,” he said. “But housing starts now have significantly trailed formations.”
That means that the number of Americans that could buy a home (formations) exceeds the number of new homes (starts) coming to market. So demand outstrips supply, and that makes prices unlikely to fall off a cliff like they did in 2008.
“There was a housing shortage of around 5 million homes before the onset of the pandemic. That shortage is not going away soon,” said Lawrence Yun, chief economist with the National Association of Realtors trade group, in a report last month.
O’Reilly noted that he expects a so-called soft landing for the housing.
Why? Demand for homes in some cities remains strong, particularly for retired Americans living on the East or West Coast looking to retire.
O’Reilly said the fact that mortgage rates have now spiked to 7% is not that much of a deterrent for older buyers who are selling their existing homes for huge premiums. Many of them are able to sell houses in New York or California at a profit and can use the cash to buy new homes with either no mortgage or a very small loan.
Source: https://edition.cnn.com/2022/10/05/investing/housing-market-howard-hughes/index.html
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