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- Redfin CEO Glenn Kelman: Plan B if mortgage rates don't come down is to 'drink our own urine or our competitors' blood, stay in the foxhole'
Redfin CEO Glenn Kelman: Plan B if mortgage rates don't come down is to 'drink our own urine or our competitors' blood, stay in the foxhole'
Redfin's CEO believes that there would be trouble for his business and existing home sales if there is no improvement in affordability.
Lance Lambert
August 13, 2024
There's a lot of mortgage rate angst across the housing sector. It’s easy to see why, considering that over the past two years, mortgage rates increased faster than expected and stayed higher longer than most forecast models anticipated.
While the average 30-year fixed mortgage rate is now at 6.52%, down from this year's peak of 7.52%, and some analysts believe that further decreases could be on the way, many buyers, sellers, agents, and lenders remain hesitant to believe it.
Heading forward, Redfin CEO Glenn Kelman told analysts on last week’s earnings call that: “We expect [mortgage] rates will stay low through the winter and into next spring, which should lead to a much stronger housing market in 2025. I believe the housing market is about to get better and that Redfin is also going to take share."
It sounds like “low” to Kelman means mortgage rates under 6.5% or 6.0%.
Later on in the call, an analyst pushed Kelman about what would happen if he’s wrong.
Here’s that transcript 👇
Wedbush analyst Jay McCanless: “Good afternoon, everyone. So, Glenn, just to take this a step further, what is Plan B if mortgage rates don't come down? Because to me, this sounds very much like August of 2023 where everyone said rates were going to come down, and we really didn't see that move this year until we thought the employment numbers are starting to fade a little bit. So, kind of walk us through what the Plan B is if rates go back to high 6s, low 7s.”
Redfin CEO Glenn Kelman: “Great question. Plan B is drink our own urine or our competitors' blood, stay in the foxhole. I don't know if you remember, but the last earnings call ended with me singing a line from a Who song, won't get fooled again, where I had said we're not banking on low rates when other people had thought they might come down. I don't know. I'm just very, very seasoned and ups and downs in the housing market. If it comes, it will be upside -- we've built a model that's more resilient, so we don't have to hire a bunch of salaried agents in advance of that. We're ready to take share if the market grows, we're ready to take share if it doesn't but we're not going to ease off.”
Wedbush analyst Jay McCanless: “OK. That's all I had. Thank you.”
Redfin CEO Glenn Kelman: “We'll drink our urine before the blood. Actually, I wish I just hadn't said that. I'd love to notify you.”
Putting aside the colorful language, Kelman clearly believes it would be trouble for existing home sales—currently hovering around multidecade lows—if mortgage rates don’t come down.
To improve existing home sales in any meaningful way, the U.S. housing market likely needs a meaningful affordability improvement. Either a home price drop, mortgage rate drop, or income jump.
Kelman—like many other housing CEOs—is hoping for a rate drop.
U.S. home prices, as measured by the Zillow Home Value Index, rose +0.3% between the June 2024 reading and the July 2024 reading.
Year-over-year: +2.8% (was +3.2% last month)
Since its 2022 peak: +3.1%
Since March 2020: +45.4%
From a historical perspective, that [+0.3%] is a fairly weak jump for this time of year, which is at the tail end of the seasonally strong window. Historically speaking, June to July has averaged a +0.9% month-over-month increase since 2000.
What’s going on?
Some housing markets in Gulf states, such as Texas, Florida, and Louisiana, where inventory has risen above pre-pandemic 2019 levels, are experiencing mild home price corrections. During the seasonally strong spring period, many of these markets in correction mode were showing very low or flat price increases. However, now that we’re past the seasonally strong period, some of those Southwest and Southeast markets are beginning to post outright month-over-month declines. Meanwhile, tight resale markets in places like SoCal, the Northeast, and the Midwest—where prices are still up a solid amount year-over-year—are largely done posting gains for the year. Thus the national month-over-month prints are softening.
The Punta Gorda, FL metro, where active inventory in July 2024 was +70% above July 2019 levels, is one such regional market passing through a correction. Home prices in Punta Gorda fell -0.9% last month. Punta Gorda prices are now down -5.9% year-over-year, and down -9.9% since its 2022 peak.
On the opposite end of the spectrum, Milwaukee is an example of a tight housing market (with active inventory in July 2024 at -41% below July 2019 levels) where it will finish the year with positive home price growth. However, it has already posted the vast majority of its 2024 gains.
Home prices in the Milwaukee, WI metro area rose +0.5% last month. Milwaukee, WI home prices are up +5.4% on a year-over-year basis, and +5.0% above its 2022 peak.
This week, ResiClub PRO members (paid tier) will get a deep dive looking at recent home price shifts across +800 metros and +3,000 counties.
Last week, ResiClub PRO members got these 3 additional research articles:
Correction: Last week’s deep dive on Punta Gorda had the largest builders in that market labeled incorrectly. Here’s the corrected chart.
