Expert who predicted 2007 financial crash makes another chilling warning for future
When the man who predicted the 2007 financial crash starts talking about the housing market, it’s probably worth paying attention.
Billionaire investor Jeremy Grantham’s latest warning isn’t about stocks or the wider economy, but housing.
Speaking to Diary of a CEO podcast host Steven Bartlett, he noted that house prices have climbed far beyond what many people can realistically afford.
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Grantham is widely known for warning that the US housing market and other assets had become dangerously overvalued in the years leading up to the 2007-08 financial crisis.
When the housing bubble eventually burst, it helped trigger the worst global economic downturn in decades.
His latest warning isn't about another financial crash, but the growing cost of buying a home.
“Property is fine except it’s pretty darn expensive by historical standards,” Grantham, 87, told the podcast.
“They’ve engineered a situation where house prices tend to rise. Great for the people who have a house and terrible for the people who would like to buy a house.”
For anyone wondering why getting on the property ladder feels harder than ever, Grantham pointed to just how dramatically house prices have outpaced household incomes over the last three decades.
“Back in ‘94 in England, a typical house sold for 3.4 times your family income. That was about as low as it had been for 50 years.
“From ‘94 until today, it rose from 3.4 times to over 10 times - depending on where you live.
“And at 10 times your income, a reasonable young couple are in big trouble. They can’t really afford to buy a house.”
He added that rising house prices have also pushed up the cost of renting, leaving many people feeling strapped whichever route they take.
“The same high prices are reflected in rents. So they’re really squeezed on living costs,” he said.
“The same is true, even worse, in China, Canada, Australia, most of Europe. House prices have simply been allowed to go up for the last 30 years.”
In Grantham's view, that's left a generation of would-be homeowners trying to keep up with prices that have risen much faster than incomes.
So, if you're hoping a housing market slowdown will suddenly make buying a home much easier, Grantham doesn't think it'll be that simple.
“Even if they come down 30%, they’re really still very expensive, aren’t they?” he told Bartlett.
“They’d come down to six or seven times the family income. They’d still be twice what they used to be in the good old days.”
Whether Grantham's latest warning proves to be as significant as some of his previous predictions remains to be seen.
But for millions of people trying to get on the property ladder, Grantham's message is a simple one: even if house prices fall, don't expect homes to suddenly become affordable again.
Ali Condon