Pimco's Kiesel who called housing top and bottom says it's time to sell

Bond manager Mark Kiesel sold his California home in 2006, when he presciently predicted the housing bubble would pop. He bought again in 2012, after U.S. prices fell more than 30% and found a floor. 

Now, after a record surge in prices, Kiesel says the time to sell is once again at hand.

Sky-high values, soaring interest rates and other costs of homeownership — maintenance, property taxes and utilities — dampen prospects for future appreciation, according to Kiesel, chief investment officer for global credit at Pacific Investment Management Co. He’s weighing putting his Orange County house on the market and becoming a renter rather than an owner.

“I can look at my long-term 25-year charts and they tell me when to buy and sell and they’re flashing orange right now,” Kiesel, 52, said during an interview at Pimco’s Newport Beach, California, headquarters. “I think we’re in the final innings.”

Home prices soared almost 20% in the 12 months through February, according to the S&P CoreLogic Case-Shiller Index, as pandemic moves, low borrowing costs and a dearth of inventory spurred heated competition for housing. But the market is now facing the fastest rise in mortgage rates in decades as the Federal Reserve works to tamp down inflation. The average 30-year rate is now 5.1%, close to a 12-year high, Freddie Mac data show.

Home sales contracts, a leading indicator, fell for the fifth consecutive month in March as rising borrowing costs added to affordability pressures, the National Association of Realtors reported on Wednesday.

PROPHETIC CHOICES

Kiesel’s possible sale is a personal move and not a forecast of a crash by Pimco, which in March put out a note predicting “No Bust After the Boom” following years of housing undersupply. “Estimates of this secular shortage range from two to five million houses,” according to the authors.

But Kiesel’s past personal decisions have proved prophetic.

He sold his Newport Beach house in May 2006, calling housing “the next Nasdaq bubble.” Home prices peaked that year before going on to plunge, triggering the global financial crisis.

“It’s not just houses that will be for sale,” Kiesel said in a June 2006 interview. “You’re going to see financial assets for sale over time, and ultimately corporate bonds.”

Then in May 2012, Kiesel decided it was time to own again, buying a golf course-adjacent home.

“For those of you renting or on the sidelines, I recommend you at least consider getting ‘back in’ and buying a house,” he wrote in a credit market note. “The future is hard to predict, but U.S. housing is healing and is probably close to a bottom.”

‘MAX 2% RETURN’

U.S. housing prices have more than doubled in the past decade and the house Kiesel bought for $2.9 million in 2012 now has an estimated value of $5.5 million, according to Redfin Corp.

Buying a home in today’s market would likely yield about a 2% return, Kiesel said. He considers his home as an investment, refusing to form an emotional attachment to his property.

“It’s only a good investment if you buy it the right time,” he said. “If I were to buy a house today, I would probably get max 2% return on it. And I can find other things I can make money on other than a house.”