One of the investors who called and profited off the subprime mortgage collapse of 2008, Steve Eisman, is dismissing concerns over a repeat housing market crash.
The Wall Street investor says on his YouTube channel that the biggest challenge facing the current sluggish housing market is not subprime loans as in 2008, but steep mortgage rates.
“The problems with the housing market today have nothing to do with subprime loans. Existing home sales are poor. Why? When the Fed cut rates to zero during COVID, every homeowner refinanced, so that most existing homeowners now have 30-year mortgages with rates around 3% to 4%. But today, mortgage rates are between 6% and 7%. For someone with a 6.5% mortgage to buy an existing home where the homeowner has a mortgage rate between 3% to 4%, the buyer, of course, wants the same monthly payment that the owner has, but the owner has a much lower mortgage rate.
To have the same monthly payment, the house price would literally have to be cut in half. Now that’s not going to happen when the homeowner, the seller or the potential seller has a job, and that’s the problem. The housing market is locked because buyers and sellers can’t meet. Again, that’s the problem, not subprime mortgages.”
Eisman also says that the subprime mortgage landscape is much different than the one leading up to the 2008 housing market crash due to new federal regulations that were put in place to prevent something similar from recurring.
“As far as subprime mortgages are concerned, post-Dodd-Frank bank regulators increased the capital requirements on subprime mortgage loans so high that banks basically don’t make them. Where they are made is by small financial companies, but it’s a small industry. I’m just not worried about subprime mortgage companies anymore. In 2006, subprime mortgage volume was 600 billion and represented 20% of the entire mortgage market. Those days are long gone.”
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