Billionaire investor John Paulson warns US house prices could tumble - and touts gold as an inflation hedge

The implosion of the mid-2000s housing bubble was called a "financial crisis" by John Paulson.

He said that the financial system is not at risk of collapsing like it was before. It might be a little frothy. It is possible that housing prices will come down or that they will not.

About 15 years ago, the mortgage market and banking system were not as strong as they are now.

Many Americans had mediocre credit and lots of personal debt at the time, which made it easy for them to buy homes.

The capital ratios of banks were much higher than they are today. They were exposed to a lot of risks that weren't disclosed on their balance sheet.

He said that you don't have a lot of poor credit quality in your mortgage. The banks were very speculative when it came to their investments. There were a lot of risky loans.

Since the start of 2020, the S&P/Case Shiller index of national home prices has increased by over 40%, while long-term mortgage rates have increased for the first time in a decade. An affordability problem that could result in a market downturn is caused by the fact that US homes have grown more expensive and financing has become more expensive.

During the interview, he took aim at some of his competitors. They were called out for hyping up stocks to gullible retail investors in order to drive up their prices, then stopping the promotion so that the stocks plummeted in value and the sellers' shorts paid off.

The investor pointed to cryptocurrencies, which he dismissed as a worthless bubble last year, as an example of short selling being riskier. He said investors didn't like it when it hit $20,000 and bet against it, only to see it triple in price to over $60,000.

Last year, Paulson predicted that inflation would lead to higher interest rates, prompting investors to switch to gold. He said that the yellow metal has been a haven asset this year.

He thinks gold could go up in value if the Fed doesn't crush inflation. Demand for metal as a hedge would increase if investors lost faith in the central bank.

During the mid-2000s housing bubble, he shorted about $25 billion of securities and made a 15 billion dollar profit for his clients. "The Greatest Trade Ever: The Behind-the-Scenes Story of How John Paulson Defied Wall Street and Made Financial History" was written by him.