Just when you thought it might be safe to buy that house on the water, a big hedge fund manager says to hold on — six months from now you can get it way cheaper.
Brian Taylor, founder and chief executive officer of hedge fund outfit Pine River, says that the housing market is headed for another downturn. Pine River, which holds $1.6 billion in assets under management, gained 90% in returns last year, mainly by betting against the housing market.
"There are still issues in the housing markets and it would not surprise us to see the recovery turn down," Taylor said, speaking at the Reuters Private Equity and Hedge Fund Summit in New York in early March.
"The amount of risk has never been greater," he also told the New York audience. "Armageddon was avoided in late 2008 and 2009," but the housing sector remains sour, as the number of homeowners that Taylor describes as being underwater on their mortgages struggle to hang on.
Taylor says that the slight uptick in housing prices in the fourth quarter of 2010 was an illusion — artificially buoyed by the $8,000 new homebuyer tax credit. But Uncle Sam can’t support the housing market forever, and Taylor looks for the government’s impact on housing values to decline in 2010.
He’s hardly alone. In a March 16 appearance on CNBC, Meredith Whitney, CEO of Meredith Whitney Advisory group, said that the housing market will “double dip” in 2010. When the government inevitably pulls back on its support for the housing sector, she says the resulting surplus of available homes will lead to reduced home values.
But struggling homeowners might be the real problem for property values. The real estate Web site Zillow.com reports that one in five U.S. homes are underwater, meaning the owners owe more than their homes are worth.