Housing market resale activity is 'dead as a doornail', Redfin CEO says

Earlier this week, I spoke with Redfin CEO Glenn Kelman. I opened up the conversation with a simple question: What are you seeing in the U.S. housing market right now?

"Well, mostly dead as a doornail, so it couldn't be worse. But there are some changes that are interesting. And the first is just that for the longest time we said [existing home] sales are going to be down but [house] prices will hold up. And I think there's some evidence that prices could begin softening just because we've seen so much listing demand recently. Normally in a downturn, you know, inventory sits on the market, owners begin marking it down, and that's how you get a price correction and eventually it's also how you get more sales,” Kelman said. “And we're starting to see more listings hit the market, you always get markdowns this time of year. But we're getting more markdowns now than at any point since at least 2015, so for the first time we’re seeing evidence that [home] prices may soften near the end of 2023 or at the beginning of 2024. We're not [seeing it yet] in Case-Shiller indexes, which are backward looking. But just if you look at pending sales you're going to start seeing softness in prices. You already saw that in places like Austin, which were real boomtowns, and Airbnb, which markets really went south around September and October because people were trying to avoid paying the next property tax bill. Having it [price declines] on a broad scale hasn't been in the cards until now, and even now I'm not sure how strong of a trend it'll be. But if you talked to me even three weeks ago, I would have said 'prices are going to hold up' and now we’re seeing some agents say 'more markdowns and more inventory'“ Kelman said.

I then pressed him, “when you say ‘mostly dead as a doornail, so it couldn't be worse’ are you referring to existing home sales?”

Kelman responded saying: “I meant existing home sales. I want to be careful, [mortgage] rates came down strongly on Friday, and our sales pipeline has definitely improved. What’s crazy about the market, you can make some prognostications, but people are just really [mortgage] rate sensitive. You talk to them, and [mortgage] rates are at 7.4% and they’re in, and then go up to 7.5% and they’re out. I think people feel nervous and even if they can afford that rate increase, they’re asking themselves every day ‘what am I doing here?” And so the people that are moving are the ones that have too, and that’s why dead as a doornail might be the right phrase: Home sales cannot go below, much below, 4 million units at an annualized rate of existing home sales per year. That’s where you get to housing is a basic need, instead of people moving opportunistically or speculatively or as an investment.”

In other words, Kelman is saying that U.S. existing home sales are about as suppressed as they can get.

When asked if Redfin has a 2024 U.S. home price or mortgage rate forecast, he responded saying that: “You know we might end up putting a press release out on that in the first week of December, but I’ve really discouraged it. I think there are years when you can make a call and then there’s 2024. There is a war in the Middle East, another one in Europe, there is a presidential election, it’s really unclear what the Fed is going to do, economic opinions among consumers are highly varied and very labile. We’re going to run our business quarter to quarter, because I’m just kind of done guessing what’s going to happen year to year.”

Kelman then said “I’m a little more optimistic, I’m not allowed to say that because there’s no real reason to be. I just have been in interviews like this where I knew things were going to get worse, and sometimes when a whale turd falls to the bottom of the ocean, the absolute floor of the ocean, it thinks to itself ‘at last nowhere to go but up.’”

The “turd” here being existing home sales.

On Saturday, ResiClub Pro (premium) members will receive Part 2 of ResiClub's discussion with Redfin CEO Glenn Kelman. In that piece, Kelman shares his industry views on the commission lawsuit, Redfin’s exit from the National Association of Realtors, and who the actual cartel in the housing market is. It’s a must read, in my humble opinion.