A Bond Fund Looks at Housing

Pimco the big Newport Beach-based bond fund has been digging into the housing market for months now. No great surprises in their latest report. The market, they figure,
Chris Palmeri

Pimco the big Newport Beach-based bond fund has been digging into the housing market for months now. No great surprises in their latest report. The market, they figure, "continues to slow every day but it is not falling off a cliff." Homes prices will climb about 5% for the year, according to Pimco. The actual number of homes sold will decline. That's due to the problem of affordability. Thanks to higher interest rates, the typical borrower taking out a 30 year mortage is paying 30% more per month. Couple that with the soaring price appreciation seen in the last few years and there are just fewer people able to afford a home. The biggest opportunity to pick up homes at lower prices will occur with homebuilders who are slashing prices and offering incentives to clear inventory. That's due to a sea change in the ownership of home builders. In 1990 only one of the top 10 builders in California was a public company. Today, nine of the top 10 builders are. Publicly traded firms are under pressure to reduce inventory and maintain their balance sheets. One thing likely to continue though is homeowners refinancing. Pimco figures that over the last six years the housing boom has created $5 trillion more value in homes than mortgages have gone up, so there is plenty of equity for homeowners to borrow off of.

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