Home affordability at 2007 bubble level, but crash unlikely: Blackstone

A major company on Wall Street draws a striking parallel to the housing bubble.

Blackstone’s Joe Zidle calls homes almost as unaffordable as the 2007 peak. Still, he believes a crash is unlikely because of one big difference: Most owners don’t use their home as an ATM.

“That caused so many people to go nuts,” the company’s chief investment strategist told CNBC’s “Fast Money” on Monday. “The value of what they owed was greater than the value of their home.”

Unlike the housing crisis, Zidle adds that home equity has hit an all-time high and household balance sheets are strong.

“You haven’t had an overbuild. You haven’t had a drop in credit or borrowing standards,” he noted.

Blackstone is known for buying dozens of distressed homes related to the 2008 financial crisis. It continues to be a major real estate player, investing in rental properties, the hire-purchase market and student housing.

“Because you have very little housing of your own, I think you end up with less risk,” he said.

In addition, Zidle mentions a strong job market.

“Historically, housing has ultimately been more strongly correlated with the labor market than with mortgage rates,” he said. “As long as the labor market remains relatively healthy, I think housing will do too.”

His forecast comes as Wall Street gears up for key consumer and housing reports this week. Investors will receive income from major retailers, including Walmart, Home Depot, Lowe’s and Target. Plus, homebuilder sentiment and home sales figures are on the way.

Zidle’s call reflects a 12-month time frame. Within that horizon, he sees the Federal Reserve raising interest rates further into next year than The Street expects due to ongoing inflation.

“Ultimately, the Fed will have to raise interest rates until something breaks,” Zidle added. “If we get to a point where something breaks, I don’t think it’s housing.”

He expects the benchmark 10-year government bond yield to reach 3.5%. It is a level he expects the housing market to be able to handle. On Monday it was about 2.8%, up from 90% so far this year.

“You could see housing prices generally flattening out. You could have vulnerabilities where housing prices could fall in some regions,” Zidle said. “But the idea of ​​a national and long-term decline in housing numbers as the economy eventually turns around, I think is still a relatively low probability.”


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