DORADO, P.R.– A person who was among the few who shared warnings ahead of the 2008 housing crash is now saying many homeowners may be reaching a point where they will simply turn in their keys.
Peter Schiff, CEO and chief global strategist of Euro Pacific Asset Management and host of “The Peter Schiff Show” podcast, said he believes rising mortgage rates and inflated home prices are on a collision course — and this time, many homeowners may “mail in their keys.”
Yahoo Finance noted that on his YouTube channel in mid-September, Schiff said, “Why are housing prices so high? Because for a long time, the Fed kept interest rates at zero, and so a lot of people were able to get really low mortgages — 3% mortgages, 4% mortgages.”
Schiff argued that homes aren’t bought based on absolute price so much as the monthly payment they generate. If interest rates are low, people can afford higher prices, he said.
A Reversed Dynamic
But now the dynamic has reversed: mortgage rates have shot up, yet home prices haven’t recalibrated accordingly, the report added.
“Now you have a problem where housing prices went way up, but then mortgage rates went way up and home prices never came back down to levels consistent with more expensive mortgages,” he said during the podcast.
Yahoo Finance noted Schiff believes that mismatch can’t last forever. “Now, of course, that will happen eventually,” he added, predicting it may “create a housing emergency. It’s going to create a bunch of defaults, and a lot of people are going to walk away and mail in their keys because they can’t sell their houses for more than they owe.”
Schiff said many homeowners are holding on because they locked in low mortgage rates, which has kept some selling pressure off the market. But sooner or later, people will be forced to move — whether for a job, relocation or financial strain.
