“Big Short” investor Michael Burry believes that government policy is the root cause of scarcity in the US housing market.
In a new post on X, the investor says the structural problem in US housing is not supply, but how existing housing is being used and circulated.
Burry says the issue is a mismatch between available space and how people occupy it, stemming from behavioral changes sparked by the ultra-low interest rate environment at the height of the pandemic.
“We studied housing square footage per capita adequacy, and found that there is no problem there. The US, in fact, has more residential square footage per capita than any other country in the world. This is not a housing shortage, despite what so many say.
The problem is that bigger houses are inefficiently housing fewer people. The post-COVID low-rate environment locked people into a lifecycle real estate position. Empty nesters can’t sell, and first-time homebuyers cannot buy. Second-hand home inventory is near all-time lows due to record-low supply, not record demand. Prices are high due to the same reason.”
According to Burry, the US housing market’s valuation has ballooned in just a few years due to government policies.
“Home equity is now a record $35 trillion, nearly doubling pre-COVID levels. 40% of homeowners own their homes free and clear – a record. And about 30% of all home buyers pay for homes without borrowing. Older homes were upgraded at a record pace during COVID, extending and refreshing the usefulness of residential real estate.
Artificially low interest rates, ~$6-7 trillion in helicopter cash and forgivable loans helped drive both the home updates and high housing prices.”
The famed short-seller says that since the housing market issue is systemic and policy-driven, the Trump administration could fix it by allowing government-sponsored entities (GSEs), such as Fannie Mae and Freddie Mac, to operate like real financial institutions once again.
According to Burry, the move would allow investors to pour money into GSEs, ultimately creating a market-driven expansion of credit that could flow into mortgage purchases and housing finance.
“Rather, to build mobility/velocity of homeowners and housing space, the GSEs need to be recapitalized and retain easy access to capital markets. They also need to be run by real mortgage executives, not government functionaries.
To achieve this, they need to exit conservatorship in a manner that excites markets to fund these companies, now with guidelines to prevent risk-taking outside of their purpose, and grow their purchases of mortgages of well-targeted specification.”
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