Investor Peter Boockvar is sounding the alarm on a housing price bubble brought on by the Federal Reserve’s Covid pandemic policies.
He warns first-time homebuyers are most vulnerable to dramatic losses.
“I feel bad for the people who bought homes over the past year because they’re the ones that paid the very elevated prices,” the chief investment officer at Bleakley Advisory Group told CNBC’s “Trading Nation” on Thursday.
He singles out those who put down 5% amid historically low mortgage rates. If home prices correct by 10%, Boockvar sees a world of pain.
‘Their equity is basically wiped out’
“Their equity is basically wiped out,” he said. “For those who have owned for a while that have built up equity, they will be much more insulated.”
His warning comes as Fed policymakers convene virtually for the annual Jackson Hole, Wyoming, symposium.
Boockvar, who went on inflation watch in mid-2020, has been critical of Fed policy through the pandemic. By maintaining unprecedented quantitative easing measures through the economic recovery, he notes the central bank created a spike in housing demand that has been overwhelming supply. The result is skyrocketing prices.
“The problem is it stimulated so much demand that the supply side couldn’t keep up — whether it was builders who couldn’t get materials or couldn’t find labor or couldn’t find enough lots,” said Boockvar, a CNBC contributor.
Since housing is the most interest rate-sensitive part of the U.S. economy, Boockvar is concerned the repercussions will be far-reaching.
“It’s very hurtful for the buyer — particularly the first-time buyer who wants to own a home who is now getting priced out and then in turn is renting,” said Boockvar. “But renting prices are going up dramatically, as well.”
He suggests there’s evidence the air is leaking out of the bubble.
“People are now seeing sticker shock in home prices and they’re backing off,” added Boockvar. “Buyers are calling a time out. They said ‘I can’t afford this’ or ‘I want to wait to see home prices cool down.'”
Wall Street may get more clarity on the housing market next week with the pending sales of existing homes, the FHFA house price index and S&P CoreLogic Case-Shiller results. He expects the data, which will reflect trends from earlier this summer, will be strong.
“We’re still going to see these double-digit home price increases,” Boockvar said. “There’s still a dearth of inventory.”