Jeffrey Gundlach, manager of the DoubleLine Total Return Bond Fund, recommended betting against an exchange-traded fund that tracks an index of homebuilders because declining affordability will reduce housing demand.
Gundlach, chief executive officer of Los Angeles-based DoubleLine Capital LP, recommended shorting the SPDR S&P Homebuilders ETF (XHB), he said today at the 19th Annual Sohn Investment Conference in New York.
“Single-family housing is overrated,” he said, citing younger people living with their parents. “Renting is more appealing across all age groups, all parts of the U.S., city, suburb, small town and rural. This is a generational preference; all young people are scarred by the housing crash” and they don’t think current interest rates are low.
Gundlach joins Sam Zell, chairman of landlord Equity Residential, in predicting a decline in owning homes. The homeownership rate in the U.S. has already dropped to the lowest level in almost 19 years as rising property prices and mortgage rates hold back demand. The share of Americans who own their homes was 64.8 percent in the first quarter, down from 65.2 percent in the previous three months, according to a Census Bureau report last month.
Gundlach, 54, started DoubleLine Capital after being ousted as chief investment officer of TCW Group Inc. in December 2009 following a dispute. Since his first mutual fund was opened in 2010, his firm has attracted about $47 billion in assets of Dec. 31. Gundlach’s $32 billion Total Return Fund (DBLTX), which specializes in mortgage bonds, has advanced an annualized 6.1 percent over the past three years, beating 97 percent of similarly managed funds, according to data compiled by Bloomberg.
The SPDR S&P Homebuilders ETF fell 1.5 percent to $31.27 at 1:39 p.m. in New York. The number of shares in the ETF sold short by investors expecting the price to drop almost doubled from April 25 to 2.9 million as of May 2, according to data compiled by Markit Ltd. That represents 5.5 percent of the fund’s outstanding shares.
Gundlach said there will be more supply of housing when investment firms, who together with cash buyers have supported the property market, liquidate their holdings. Baby boomers selling their houses will also add to supply, he said.
“The argument of pent-up demand is wrong,” Gundlach said.
Younger people don’t have good job prospects and face difficulties in saving for deposits because of rising rents, he said.
Zell, at the Milken Institute Global Conference in Beverly Hills, California, last week said the homeownership rate in the U.S. may fall to as low as 55 percent as Americans postpone getting married and having children.
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