Housing bust or boom? a chief strategist unpacks the odds

  • The US housing market is buzzing just as the Fed begins its rate hike cycle, prompting warnings of a crash from some.
  • Brian Nick, chief investment strategist at Nuveen, a $1.2 trillion property-focused asset manager, sat down with Insider to provide his insight.
  • Nick also revealed his view on stock markets as the conflict in Ukraine nears the two-month mark.

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


recession

in the United States next year.

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

Seeing these kinds of warnings will make some investors feel a little pissed off and consider hitting the sell button on large chunks of their portfolio.

If bad economic times are looming, the only way to preserve the total value of your portfolio is to get out before it becomes inevitable. It is then too late, because the markets assess the economic reality in advance.

Selling too early, however, can be just as costly as buying at the wrong time, and many economists and market experts see things very differently from Deutsche Bank.

Brian Nick, chief investment strategist at Nuveen, a $1.2 trillion property-focused asset manager, sees more reason to stay positive on the economy right now than to turn bearish.

As the markets accept the conflict in Ukraine and the


Federal Reserve

with a reputation for being very accommodating to the markets, Nick sees a complex picture but no need to sound the alarm.

“With the war in Ukraine, it’s not clear that anything is much closer to an end point or a resolution, or certainly, any sort of peaceful resolution than a few weeks ago, but the markets kind of blocked that, I think people have now taken that growth discount in Europe in the US,” he told Insider in a recent interview.

“The market is struggling to follow what the Fed plans to do, and I think when the Fed reacts to the markets there is this spiral of mutual reinforcement. I think it happens too quickly for the markets to digest and treat,” he said. .

Despite the fluidity of the monetary policy situation, Nick sees the possibility of a scenario in which Fed policy surprises markets on the positive side, creating new room for asset prices to rise.

“The thing here, though, is that neither the Fed nor the markets know exactly what’s going to happen. They’re sort of pricing in what they think might be the worst-case scenario in terms of rate hikes. But if the inflation data is weaker, they won’t have to do as much as is expected now. We’re still optimistic,” he said.

“It looks like inflation is no longer accelerating for core prices,” Nick continued. “We’re going to have a really lousy March headline because of what’s going to happen with energy, but after that we should see a deceleration that allows the Fed and the markets to roll back off that cliff.”

“Just a few steps back, and I think that gives room for equity markets, credit markets to run a bit and probably eases the pressure on the yield curve a bit. Six months from now, we may be less worried about the recession than we are. today.”

When it comes to the housing market, Nick sees some of the warnings of overheating and potential crashing as far from the truth, due to the factors that are actually pushing prices up.

“I don’t think there’s a bubble, I think there’s a shortage. The prices are so high, it’s because you have two years of incredibly high demand for a number of reasons. People found themselves wealthier coming out of the pandemic than they were going in, especially people looking to buy a home.

“There have been stimulus payments, higher savings rates and the kind of return we’ve seen in financial assets. There are a lot of households where I think people are in a better position to buy a house until the end of 2019.”

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

Nick added that supply is not going to catch up with demand anytime soon and that the legacy of the 2008 financial crisis is that developers have actually become too cautious about the number of new properties they build and put on the market. market.

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

“One of the areas we’re actually bullish on is single-family rentals. We’ve added them to our property portfolios in a way that we really haven’t done before, consistently in places where we feel people are going to get a price out of the buyer’s market, but they’re still going to want to live in big homes,” he said.

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