Legendary investor Jeremy Grantham has issued a warning about the US housing market as mortgage rates rise. He said a crash in the property market would be much more dangerous for the economy than a plunge in stocks. The GMO founder has said markets — including housing — are in a “superbubble” that is about to pop. Loading Something is loading.
Legendary investor Jeremy Grantham has issued a warning about the US housing market as mortgage rates rise, saying a property crash would be much more dangerous for the economy than a drop in stocks.
“2000 showed you can just about skate through a stock market event,” Grantham said in an interview with Bloomberg columnist John Authers on Wednesday, published Friday. “But Japan and 2008 showed you can’t skate through a housing crisis.”
Grantham predicted in January that one of the few great market “superbubbles” in modern history is about to pop. On top of worrying signs in stock markets, Grantham thinks housing markets look particularly dangerous, he said earlier this year.
House prices have surged in the US since the start of the coronavirus pandemic, as the Federal Reserve and government have pumped stimulus into the economy and supply has failed to keep up with demand.
However, the Fed’s moves to raise interest rates and end the easy-money era are heightening concerns among some analysts about the housing market.
In the two years to February 2022, the S&P Case-Shiller US national home price index surged by more than one-third, aided by ultra-low interest rates on mortgages.
Yet the Fed’s interest-rate increases — which took the target rate range to 0.75% to 1% this week — and its plans to go even further have pushed up bond yields and mortgage rates.
The average 30-year mortgage rate hit 5.27% this week, its highest level since 2009, according to Freddie Mac.
Grantham warned last year that there would eventually be a “day of reckoning” for housing markets around the world after huge price increases.
The famed investor, who co-founded GMO in the 1970s, has long said that Japan’s experience in the 1990s should act as a warning when it comes to housing.
In Japan, property prices peaked in 1991 and crashed dramatically. They are still yet to recover, with the property market a key factor weighing on Japan’s economy over the last decade.
Grantham told Bloomberg on Wednesday that stocks are selling off sharply, as investors begin to realize that the world economy has changed dramatically and inflation is here to stay.
The S&P 500 tumbled 3.56% Thursday to take its losses to 13% this year.
“This was the biggest decline of the S&P in the first four months of trading since I was one year old, in 1939,” Grantham said. “The reality is that this is about as rapidly as any market comes down.”
Read more: The boss of a $2.2 billion hedge fund who’s called the last two big bear markets lays out why he’s moved virtually all his assets into cash. He shares what he wants to see before buying back in.
Deal icon An icon in the shape of a lightning bolt. Keep reading
More: MI Exclusive Markets Jeremy Grantham superbubble Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.