Billionaire real estate investor Sam Zell says don't take too much comfort in declining mortgage costs, and the Fed will keep hiking rates close to 6%

sam zell 2
sam zell 2  
  • The Fed will need to rate interest rates closer to 6% to meaningfully ease inflationary pressures, said legendary property investor Sam Zell.

  • A "shocking event" was mortgage rates more than doubling this year, the billionaire told Fox Business.

  • Zell also sees the US economy falling into a recession.

There's little comfort to be had in a recent softening in mortgage rates because the Federal Reserve is likely to continue with its string of rate hikes to catch up in taming inflation, billionaire property investor Sam Zell said Thursday.

In terms of the fed funds rate, "I think that probably 5% is the minimum necessary to slow the pace of inflation and it's probably going to require something above that," the founder and chairman of privately held Equity Group Investments said in a Fox Business interview on Thursday. "Probably closer to 6 [percent] than 5."

The Federal Reserve looks set next week to raise borrowing costs by another 50 basis points, bringing the fed funds rate to a range of 4.25% to 4.5%. Investors are largely pricing in more rate hikes in 2023 that will bring it to 5%.

As the benchmark rate has climbed, so have borrowing costs to purchase homes. The average 30-year fixed mortgage rate hit a 21-year high of 7.16% in late October, according to the Mortgage Bankers Association.

While it has since pulled back to 6.41%, it's up from around 3.4% at the start of this year, before the Fed started jacking up borrowing costs from 0% to calm headline consumer price inflation that reached as high as 9.1% earlier this year.

"In a very, very short period of time … less than 90 days, mortgage rates doubled. The fact that they've doubled is quite a shocking event and the fact that they've come back some is not shocking at all," Zell said. "Everything comes down to your monthly payment … and the monthly payment has more than doubled in 60 days, and it's adjusting accordingly. I wouldn't take too much comfort from the fact that mortgage rates have come down."

Zell also foresees the world's largest economy contracting next year.

"I think the odds of us going into recession are very high. And now whether that recession will be very painful or not I think still remains to be seen. But it's very hard for me to believe that we're not moving into an area with a lot higher interest rates and a lot of people sitting on the sidelines avoiding to make commitments," he said.


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