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The housing market can’t get much worse from here, according to Redfin CEO Glenn Kelman.
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High mortgage rates and high prices have crushed affordability for buyers.
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The market is in a freeze and the sales slowdown that will last for a “long time,” Kelman warned.
The only good thing right now about the US housing market is that it can’t get much worse from here, according to Redfin CEO Glenn Kelman.
The head of the real estate listing site pointed to tough market conditions over the past year, with affordability plunging to an all-time-low, according to Goldman Sachs’ housing affordability gauge.
That’s the fault of high mortgage rates, which have raised the cost of borrowing for prospective homebuyers, while also discouraging potential sellers from listing their homes. That’s exacerbated the supply shortage and pushed up home prices even as demand falls due to higher rates.
The median sales price for a single-family home inched back closer to its all-time-high last month, clocking in at $420,846 in August. Meanwhile, mortgage rates have stayed stubbornly above 7%.
“It’s been a slow-building disaster,” Kelman said in an interview with CNBC on Tuesday. “The housing market is just taking a beating because affordability is at a four-decade low.”
Existing home sales have plunged to a seasonally adjusted rate of around 4 million a year, down from around 6.6 million a year in late 2020, according to the National Association of Realtors. And the small amount of homes that have been hitting the market are largely from homeowners who are selling out of necessity, due to events like marriage or job changes.
That differs from previous housing slowdowns, where homeowners have been forced to sell their properties due to foreclosure risk.
“The only people who are moving are the ones who absolutely have to,” Kelman added. “I wouldn’t call that a Goldilocks scenario, I would call that rock bottom. But that’s where we are right now, and the only relief is that it can’t go much lower.
The sales slowdown is bound to last “a long, long time,” Kelman warned, as experts say affordability won’t improve until mortgage rates dial back. But that’s unlikely to happen over the next year, with central bankers keeping a hawkish eye on inflation,
Fed officials raised interest rates aggressively over the past 18 months to tame high prices, a move that’s helped push mortgage rates up to two-decade highs. Markets are pricing in an 44% chance interest rates will stay higher than 5% by the end of 2024, per the CME FedWatch tool. Meanwhile, Redfin expects the 30-year mortgage rate to ease to just around 6% by the end of 2023.
This story was originally published in September 2023.
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