Elon Musk's Reminder On Excesses That Led To 2006-07 Housing Market Collapse: 'They Dug Their Own Graves'

Tesla CEO Elon Musk warned about a risk that looms large for the housing market, repeating a thought he expressed a year ago.

What Happened: "Commercial real estate is melting down fast. Home values next," Musk tweeted on Monday. The statement came in response to an observation by his good ole friend David Sacks about the commercial real estate market in Los Angeles and San Francisco.

Sacks, a tech entrepreneur and investor, noted that  "LA office towers are selling for less than the amount of debt on them. This is true for SF too and other big cities."  His comments came as a quote-tweet of another Twitter user, who shared a story about the state of the commercial real estate market in these two cities.

L.A.’s office towers have, on average, $230 in debt per foot, while the only building to sell this year went for $154 per foot, the Twitter user said.

Commercial real estate is melting down fast. Home values next.

— Elon Musk (@elonmusk) May 29, 2023

Musk Saw It Coming:  Musk's previous warning about the housing market came as a response to a tweet by Dogecoin co-founder Billy Markus, who goes by the Twitter name Shibetoshi Nakamoto.

Markus noted in the tweet that cryptocurrency was created as a statement against central bank control following the 2008 recession, caused by predatory lending practices. This led to the housing bubble burst, rampant money printing, bailout etc, he added.

 Musk chimed in with his view that the mistake was assuming that house prices only go up.

He also clarified that he doesn't support predatory lending – a term that refers to unfair lending practices such as charging higher interest rates, higher fees etc. Many of the lenders were severely wounded or didn't survive, he observed. "They dug their own graves – a lesson we should all take to heart, including me," Musk said.

The axiomatic error was that housing prices only go up. I don't support predatory lending, but many of those lenders were severely wounded or didn't survive.
>> see mortgage rates in real time
They dug their own graves – a lesson we should all take to heart, including me.

— Elon Musk (@elonmusk) May 14, 2022

Related Link: The Crisis In Housing, Part 1: A Lopsided Market

Why It's Important: The housing market collapse of 2006 that followed a bubble was triggered by a combination of predatory lending practices and financially engineered products such as subprime loans that left borrowers saddled with unaffordable mortgages. This led to a foreclosure crisis among homeowners and credit crises among those who held bonds backed by defaulted mortgages. The collapse of Lehman Brothers and the global recession that ensued are all the handiwork of the housing collapse.

Some elements of this story were previously reported by Benzinga and it has been updated.

Photo: Includes an image from Tesla Owners Club Belgium on Flickr

This story was originally published on May. 14, 2022.