Investment Advisor, Co-Founder, and CEO of GK ETF, Ross Gerber, tweeted his view on the real estate sector and said that he sees the real estate bubble is about to burst. According to Gerber, rising interest rates and record high inflation have already created a hole in consumers’ pockets.
According to Gerber, many people have refinanced mortgages at lower rates during the last decade, especially in the last two years. These are set to become pricier with the interest rate hikes, which will force several people to sell their unaffordable houses.
Mortgage rates have rolled up higher to around 5% (from around 2.5% to 3%), which may affect an average Joe’s capability to repay. People are preferring to rent instead of buying homes.
While a few replies echo the same fear as Gerber, comparing the current real estate market environment to the 2008/09 bubble, some agree that the sector will only slow down due to the current economic scenario, but not collapse altogether. A couple from the mortgage industry have even stated that they fear losing their jobs due to the slowdown.
Notably, a few even deny the whole thesis and said that no sane individual would have reset mortgages at adjustable rates (ARM) after the last real estate bubble burst. Most have refinanced at fixed rates and benefited from the same.
Surely, the limited inventory supply during the pandemic has shot up real estate prices. Due to the subdued interest rates, consumers are currently highly leveraged.
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