The housing market is not about to crash. But anyone who expects the industry to drive the economy the way it has since World War II is in for a rude shock, DoubleLine founder Jeffrey Gundlach predicts. The biggest victims of this seismic sociological shift in the way America lives in the future are likely to be home builders, in his view.
Speaking at the fifth annual Innovative Alternative Investments Conference, Gundlach explained in great detail to about 700 attendees why he was convinced that U.S. housing was starting to experience fundamental changes that would alter the industry for decades. One piece of evidence is the fact that new home sales are down year over year and could be headed lower in his view.
It is true that housing starts are climbing, but Gundlach believes the home-building industry is acting based on past experience as it fails to recognize the changing attitude of future home buyers. The recent increase in housing starts could even trigger an excess supply that could prove problematic.
"Affordability is about as bad as it's been in a long time," Gundlach said. The number of first-time buyers are down significantly.
But the overarching reason the home-building bulls are making a major miscalculation is that they are assuming the current generation of millennials will behave like baby boomers. "Baby boomers are not like other generations," Gundlach said. Many of this self-indulgent cohort hated their parents, burned their draft cards and couldn't wait until they turned 16 to buy their own cars and hit the road.
In sharp contrast, millennials actually like their parents. They even watch the same reality shows and don't mind living together. Unlike previous generations, they appear to find small things like car ownership, much less home ownership, much less liberating than previous generations.Those are among the reasons Gundlach thinks multigenerational housing could proliferate for decades, placing additional downward pressure on real estate prices.
Another obvious reason is simple economics. TD Ameritrade has published research that the average baby boomer has undersaved for retirement by as much as $500,000. Many boomers will rely on Social Security as their primary source of retirement income.
One report claims that 35% of Americans are subject to debt collection. Even among the so-called affluent, Gundlach cited the case of a successful dentist who claimed he couldn't retire unless he sold his $3 million home.
Given that many of their children are saddled with student loan debt, there may be more compelling reasons for them to move in together besides the fact that they share the same taste in reality shows.
One of the world's leading mortgage-backed securities investors, Gundlach is a serious student of housing. He produced a series of charts showing that many Americans, even when segregated by different age groups, regions, cities and suburbs, all now find renting preferable to owning.