“It’s only a good investment if you buy it the right time,” says Pimco CIO of global credit Mark Kiesel.
Is it time to sell your home or that second property you bought as an investment? Will years of unfettered home price growth ultimately lead to a crash?
The debate on this topic, predictably, rages on with no solution in sight.
Some analysts point toward a growing population, historically low inventory rates and building that is not keeping up with inflation.
Others argue that many markets across the country are currently overinflated due to investor interest disproportionate with the people who actually want to live there.
One analyst who is firmly in the “sell” camp is Mark Kiesel, Chief Investment Officer Global Credit at Pimco (PAAIX) – Get PIMCO All Asset Inst Report.
The bond manager sold his home in Southern California in 2006 and predicted that nationwide home prices would trend downward in 2005.
They were at their height in the winter of 2006 and many were buying vacation condos in Florida.
“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.”
‘The Final Innings’
Kiesel says he is feeling those forebodings once again.
“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 told Bloomberg during a recent interview at Pimco’s Newport Beach, California headquarters. “I think we’re in the final innings.”
The S&P CoreLogic Case-Shiller Index indicates that, between March 2021 and 2022, home prices across the country rose by 13.2%.
Certain booming markets, including Austin, Texas and Richmond, Virginia, have been seeing growth of more than 20%.
In comparison, Freddie Mac data from the last 30 years shows that homes increased by an average of only 5.1% a year over the last 30 years.
With such numbers making even lower-end listings unaffordable for large pockets of the population, some buyers are holding off on buying entirely and causing the market to correct itself as fewer people overall make offers.
While this effect isn’t large enough to be felt in super-hot markets, cities like Toledo, Detroit and Pittsburgh all saw housing values fall by more than 10% in the last 12 months.
Are You Buying For Yourself Or Are You Investing?
Certain markets aside, most experts are predicting home growth to slow but certainly not stop entirely.
According to Kiesel, buying a house in the tail end of 2022 will lead to only a 2% return rate going forward.
At the moment, the major gains of those who bought real estate in the last decade are luring would-be buyers who hope that securing a property at any cost will get one into the equity game and yield the same.
The golf course-adjacent house Kiesel paid $2.9 million for in 2012 is now worth around $5.5 million
But we’re now in a very different market and while those who plan on living in the property for a while will be able to weather its ebbs and flows, real estate may not be the most lucrative asset to look at in the short term.
“It’s only a good investment if you buy it the right time,” Kiesel 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..”
