Housing Bust or Boom? a Chief Strategist Unpacks the Odds

  • The US housing market is heating up just as the Fed begins its rate hike cycle, prompting some to warn of a crash.
  • Brian Nick, chief investment strategist at $1.2 trillion real estate asset manager Nuveen, spoke to Insider to share his views.
  • Nick also revealed his views on stock markets as the Ukraine conflict nears the two-month point.

The bears are beginning to make themselves heard. This week, Deutsche Bank became the first major company to predict a


recession

in the US as early as next year.

Others warn that the housing market is showing signs of being in a bubble that could burst and take the economy with it.

When some investors see these types of alerts, they will feel a little nervous and consider hitting the sell button on large chunks of their portfolio.

When bad economic times hit, the only way to preserve full portfolio value is to exit before it becomes inevitable. At that point it is too late as markets are pricing in economic reality ahead of time.

However, selling too early can be just as expensive as buying at the wrong time, and there are many economists and market experts who take a very different view than Deutsche Bank.

Brian Nick, chief investment strategist at $1.2 trillion real estate asset manager Nuveen, sees more reason to be positive about the economy than declining right now.

With the markets coming to terms with the conflict in Ukraine and the


federal reserve

With a track record of being very accommodating to the markets, Nick sees a complex picture but no need for alarm bells.

“With the war in Ukraine, it’s not clear that anything is getting much closer to an endpoint or a solution, or certainly a peaceful solution than it was a few weeks ago, but the markets kind of gated that off, I think people have that discount on that Growth in Europe now taken up in the US,” he told Insider in a recent interview.

“The market is struggling to keep up with the Fed’s plans and I think when the Fed responds to the markets there is this mutual reinforcement spiral. I think it’s happening way too fast for the markets to digest and process,” he said.

Despite the choppy monetary policy environment, Nick sees the possibility of a scenario where Fed policy will surprise markets on the upside and create new scope for asset price gains.

“However, the trick here is that neither the Fed nor the markets know exactly what is going to happen. They’re kind of pricing in what they think is the worst-case scenario for rate hikes. But if the inflation data weakens, they don’t have to do as much as is priced in now. We’re still optimistic,” he said.

“It seems like inflation isn’t accelerating anymore for core prices,” Nick continued. “We’re going to have a really ugly headline in March because of what’s going to happen with energy, but after that we should see a slowdown that allows the Fed and markets to move off that cliff.”

“Just a few steps back and I think that gives equity markets and credit markets room to run a little and probably takes some pressure off the yield curve. In six months we may be less concerned about a recession than we are today.”

Turning to the housing market, Nick dismisses some of the warnings of overheating and possible collapse due to the factors that are actually driving prices higher.

“I don’t think there is a bubble, I think there is a shortage. The prices are so high because you have an incredibly high demand for two years for several reasons, especially people who wanted to buy a house.

“There were stimulus payments, higher savings rates, and the kind of returns that we’ve seen in financial investments. There are many households where I think people are in a better position to buy a home than they were at the end of 2019.”

“Flexibility in the workplace also increases demand and makes space more important,” Nick continued. “So if you work in New York City now, you can live on Long Island. You don’t have to live in a two bedroom apartment and you can basically telecommute most of the time. That changes dramatically where we need housing and we just don’t have enough.”

Nick added that supply isn’t going to catch up with demand anytime soon and the legacy of the 2008 financial crisis is that developers have actually become too cautious about the amount of new properties they build and bring to the market.

This lack of course creates opportunities for investors and Nick said he really likes a certain part of the real estate market.

“One of the areas where we’re actually optimistic is single-family rentals. We’ve added these to our real estate portfolios in a way that we’ve really never had before, systematically in places where we feel people will go to be priced out by the buyer’s market, but they’ll still live in big houses want,” he said.

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