Home News Housing is slumping but this real estate CEO explains why it’s not 2008 all over again

Housing is slumping but this real estate CEO explains why it’s not 2008 all over again

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New York
CNN business

Mortgage interest rates are soaring. And for many prospective homebuyers, especially first-time buyers, Rising Mortgage Costs When Real estate prices are still rising Making the idea of ​​buying a home prohibitively expensive…if not impossible.

But don’t tell the CEO of Howard Hughes, a real estate developer. In an interview with CNN Business, David O’Reilly said he wasn’t too worried about further housing market crashes, explaining why.

“Technically speaking, we’re probably in a housing recession,” he said, referring to the term used to describe home sales declining for at least six months. “We are clearly in recession, but this is very different.”

O’Reilly said there was a glut of new homes built in the years leading up to the 2008 bankruptcies of Bear Stearns, Lehman Brothers, Washington Mutual and others.

“We had a massive oversupply when Lehman hit the wall,” he said. “However, housing starts are currently lagging significantly behind.”

In other words, the number of Americans who can afford to buy a home (Formation) outnumbers the number of new homes hitting the market (Start). As such, it is unlikely that demand will outstrip supply and prices will fall off a cliff like they did in 2008.

“Before the pandemic, there was a shortfall of about 5 million homes, and this shortfall is not going away any time soon,” said Lawrence Yun, chief economist at the National Association of Realtors trade group, in a report last month. said in

O’Reilly said he expects a so-called soft landing for housing in markets where Howard Hughes has a large presence, such as Phoenix, Las Vegas and Houston.

why? housing demand The trend remains strong in these cities, especially as retired Americans living on the East or West Coast seek to retire.

“We’re seeing migration from the big coastal cities to the Southwest,” he said. “We continue to see purchases from seniors who can afford twice as many homes for much lower taxes.”

O’Reilly said the fact that mortgage rates are now soaring to 7% won’t be much of a deterrent to older buyers looking to sell their existing homes for huge premiums. I’m here. Many of them are able to sell their homes in New York or California at a profit and use that cash to buy new homes with no mortgage or a very small loan.

Howard Hughes also has a presence in commercial real estate. It’s a tougher market, especially given the changing nature of work for Americans in white-collar jobs.

“Obviously, people won’t be using office space the way they were before the pandemic,” said O’Reilly.

O’Reilly said there are other challenges for commercial developers. Bank lending standards have tightened significantly since the Great Recession. This is largely due to the implementation of new federal laws designed to keep financial institutions from getting stuck in bad debt problems like his 2008.

“Right now, it’s almost impossible to get a loan or refinance an office building, even with strong fundamentals.” Retail, offices, hotels. ”

Weakness in commercial real estate, Howard Hughes

, like other real estate stocks, has plunged this year. Shares have fallen more than 40%.

O’Reilly admitted that the biggest problem for real estate and other financial firms is that no one really has a clue how aggressive the Fed will be to keep inflation down.

“Banks are not sure where interest rates are going. I think we are all,” he said.

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