Jeffrey Gundlach may be one of the industry's top bond fund managers, but he's certainly no optimist when it comes to the U.S. housing market.
“I believe single-family housing is overbelieved and overrated,” he said. “For all the hype and talk that you hear about the strength of the housing market, you see that new home sales are right flat on their back — just like they were at the depths of the recession.”
Speakers at the Sohn Conference Foundation event in New York on Monday, including hedge fund managers such as William Ackman and David Einhorn, offer bite-sized, investible ideas at a fundraising event for the benefit of pediatric cancer research.
But Mr. Gundlach was less than charitable when it came to his take on the housing market. He recommended taking a short position in the SPDR S&P Homebuilders ETF (XHB), a bet the index will decline in value. (It did decline Monday, by about 1.57% in afternoon trading.)
Mr. Gundlach discussed a series of charts pointing to first-time buyers, household formation, housing starts, subprime loans and rent prices, which he said for the most part point to a market propped up by cash transactions and second-lien borrowing, rather than traditional mortgages and organic demand from first-time homebuyers.
The remarks match those by another legendary investor, Warren E. Buffett, who in an interview Thursday with CNBC said that housing is “not that strong yet."
And some data on the market has been weak. The Commerce Department reported last week that slowing real estate construction was a drag on economic growth. They said a measure of investment in residential real estate fell 5.7% in the first quarter.
To Mr. Gundlach, the absence of first-time homebuyers is due in no small part to the declining job prospects, ballooning student-loan debt, rising rent costs and shifting values of younger Americans.
“The kids aren't alright,” he said. “Young people in particular were shocked and scarred by the housing crisis."
The DoubleLine Total Return Bond Fund (DBLTX) managed by Mr. Gundlach managed $31.7 billion at the end of March.