Housing Market Echoes Credit Crisis: DoubleLine CEO
The housing market is dropping and "about to go to a new low," Jeffrey Gundlach, chief executive of the fixed-income investment management firm DoubleLine Capital told CNBC Tuesday.
"I kind of think we're looking at some type of echo in the credit crisis coming up here. That's what I'm sort of afraid of," said Gundlach, whose firm has almost $11.2 billion in assets under management.
"The housing market is dropping. It depends what indicator you look at. Case-Shiller [S&P/Case-Shiller Home Price Indices] kind of lags but it's about to go to a new low. It's one basis point off the low that was hit a couple of years ago," he added.
Back in 2007 the ABX Index,an index referencing a basket of 20 subprime mortgage-backed securities, was heavily traded, Gundlach explained. "It was a real-time index, but what people aren't noticing is its dropped about 20 percent in value in the past few months, and most of that decline has happened in the last three months."
The housing recovery-rate is going down in twofold: "First, home prices are dropping and that's going to make the recovery rates lower," he said. Second, the amount of time it takes to liquidate a foreclosed property is now, on average, 26 months as opposed to 12 to 18 months, which "pushes out the timeline."
He added that "the longer it takes to liquidate a property, the less you get for two reasons: one, the property is rotting away. They're not exactly mowing the lawn and putting on a fresh coat of paint when it's in foreclosure. And the second thing is the servicers forward principal and interest until such time as they deem the loan nonrecoverable."
"I like to follow Countrywide. That's kind of the hot potato that got pushed over to Bank of America," added Gundlach. "The majority of non-performing loans are Countywide-based but in totality at Bank of America they reported over $200 billion of loans that are not making payments. This is not a forecast of where this is going to go, this is what's already on the books."
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