If you haven’t heard yet, median home prices in the United States are on a tear having reached all-time highs in April. To boot, rental prices have gone insane, showing a year-over-year inflationary increase of 8%. On top of that, stock markets are rocketing back to their own all time highs based on the premise that the U.S. economy is seeing healthy growth. By all official accounts, it appears that we’re back on track.
But appearances can be deceiving and highly acclaimed investment guru Sam Zell isn’t buying the hype. In fact, he’s taking this opportunity to sell… in a very big way.
And he has been selling. Back in 2007, he once again proved his sense of market timing. As the commercial property bubble was already teetering, he sold Equity Office Properties Trust to Blackstone for $23 billion, not including $16 billion in debt. Then prices crashed, and commercial property defaults hit the banks. As the dust was settling at the end of the Great Recession, he went on a shopping spree.
Now he’s selling again, unloading multifamily properties at peak prices on a massive scale just when a multi-year construction boom is flooding the market with new supply.
So when Sam Zell speaks, our ears perk up.
In a recent interview with CNBC Zell noted that zero interest rate policies are removing the risk of borrowing, making it easy for big banks and finance companies to keep pushing supply onto the market.
Easy credit. What could possibly go wrong?
A lot, according to Zell:
“Overall we’ve come off this extraordinary period of liquidity and this extraordinary period of low interest rates… I think we’re unlikely to see a repeat of that going forward, and I think we’re going to see more supply in what had been pretty tight markets.”
“In the most simplistic terminology, I would ask you the question, if something is free, is it valued? Is it appropriately risked?”
“We have distorted markets. Maybe we have bubbles.”
“The problem is I think the Fed should have raised interest rates two years ago, and therefore today would be able to make a much more rational decision as to what to do. The problem is that they’ve so deferred reality for so long that I think they have a serious credibility problem if they don’t raise rates.”
Everything seems to be booming again – easy money, easy lending, rising prices, and a bread and circused populous.
Should Americans be preparing for another collapse?
Probably not, because despite all of the market distortions, there is really no need for concern. This time it really is different.