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We’re in the Middle of a Housing Bubble: Sam Zell

Real estate mogul Sam Zell predicts the current housing bubble could burst and he has already started selling.

According to the renowned investor, an end to the current real estate bubble is inevitable as the low interest rate cycle is ending. The recent housing market is no longer tight, testing the housing bubble’s resistance.

Zell says the Fed has intervened too much in trying to control market forces, blaming it for being too slow to act on interest rates.

“I think when you talk about interest rates being close to zero for a long period of time, I’m very concerned about the fact that we have desensitized our business community to the cost of capital,” warns Zell. (Source: “Ultimate Market Timer Sam Zell: ‘Know What the Problem Is?’,” Wolf Street, May 27, 2016.)

Zell sees the low interest rates as having fooled average Americans about the true cost of capital. Most people simply deferred “facing up to the cost of capital” and now, as before, that cost is knocking at the door to collect. The low interest rates have distorted the housing market, warns Zell, and when “we have distorted markets…maybe we have bubbles.” (Source: Ibid.)

Zell, who accuses the Fed of raising rates to save face rather than for the sound economic reasoning that should guide such decisions, is selling at top dollar—unloading assets ahead of a housing crash. (Source: Ibid.)

Sam Zell didn’t suddenly wake up after dreaming about the collapse of the current housing bubble. Last October, he sent a clear signal to the markets when he sold more than 23,000 apartments controlled by his Equity Residential for $5.4 billion to Starwood Capital Group. (Source: “Sam Zell edges out of apartments,” The Wall Street Journal, October 26, 2015.)

Sam Zell is a trendsetter and when he starts selling his property assets—whether these include offices, retail spaces, or apartments—less gifted investors know that it’s time to start wondering just how long the good times can last. Better yet, they start worrying about a housing crash while taking necessary corrective actions after a steep run-up in prices since the downturn.

Zell is one of few real estate luminaries. He recognized the recent housing bubble in America’s housing market in good time, far before it finally burst with a bang.

Since 2010, prices have almost doubled in the commercial real estate markets of the United States and have reached new all-time highs. (Source: “Harvard’s Hometown Graduates To A Higher Real Estate Class,” Forbes, May 25, 2016.) If Sam Zell starts selling, expect a housing crash to follow.