DoubleLine Capital CEO Jeffrey Gundlach shares Fed Chairwoman Janet Yellen's concerns on housing and is betting appropriately.
"Readings on housing activity, a sector that has been recovering since 2011, have remained disappointing so far this year and will bear watching," Yellen said in testimony on Wednesday.
Gundlach, who spoke at the Irah Sohn Investment Conference in New York earlier this week and with CNBC/Yahoo Finance late Tuesday, doesn't understand the bullish views of some investors.
"I'm really surprised at how people are so copacetic about the homebuilders and the housing market," he said. "You look at the data, and it's gotten really soft… You look at mortgage applications, housing starts, [and] you look at new home sales in particular. They're no better than they were at the so-called trough of the recession."
The bond guru believes the U.S. is will never again see a year with 1.5 million housing starts, Yahoo Finance reported. In March, private housing starts were at a seasonally adjusted annual rate of 946,000; a decade ago they were at 2 million.
Gundlach points to demographic shifts as the main factor behind this weakness.
"Single-family housing is overrated," Gundlach told Bloomberg earlier this week. "Renting is more appealing across all age groups, all parts of the U.S., city, suburb, small town and rural. This is a generational preference; all young people are scarred by the housing crash," and they don't think current interest rates are low.
At the Ira Sohn event, he pointed to high student debt and painful memories of the housing crisis as reasons for pessimism among potential new homebuyers. "The kids aren't all right," Gundlach told the audience.
Housing, Real Estate Plays
Gundlach says he's shorting the SPDR S&P Homebuilders ETF (XHB). That ETF is down more than 7% so far in 2014. XHB includes holdings in wood-products maker Trex, as well as companies that produce appliances, furnishings and building products.
The iShares SPDR S&P Homebuilders ETF (ITB) is down about 6%.
