What’s up everyone
Redfin CEO, Glenn Kelman, believes investor activity (his own company’s ibuyer program included) has contributed a lot more to the rapid decline in prices than people are aware of. So, we will dig deeper into that. Also, Bankrate has come out with a 5 year forecast regarding home prices and mortgage rates which includes opinions by Lawrence Yun, the NAR chief economist, and Danushka Nanayakkara-Skillington, assistant vice president, forecasting and analysis for the National Association of Homebuilders (NAHB) so we’ll take a look at that as well. And as always, I’ll chime in with my opinion.
So, lets dive right in.
Lance Lambert wrote an article in Fortune titled “Home prices are falling faster now than in 2006—Redfin’s CEO just revealed why” where he quotes Kelman as saying that investors and ibuyers specifically are responsible for correcting home prices faster now than back in 2006.
He explains it like this- historically speaking, home prices are sticky. Sellers simply don’t want to relent on price unless economics, like a supply glut, force their hand. That’s not as much the case for institutional investors and builders. If they think prices are about to drop, they want to get out first.
The fact that the Pandemic Housing Boom saw investors become a higher share of buyers, Kelman says, ultimately makes the U.S. housing market more vulnerable to a faster swing down.
“When the shiitake mushrooms hit the fan, you (meaning investors) want to get out first. The way to do that is to figure out where the lowest sale is, and be 2% below that. And if it doesn’t sell in the first weekend, move it down [again],” Kelman says.
So he is basically admitting that he’s directing Redfin’s iBuyers to drop their prices immediately below the lowest comp on the market.
And if this is true, you bet the prices will go down much faster than the last downturn. He’s trying to get ahead of the game by selling their inventory as quick as possible to offset any losses. And let’s be clear, they own a lot of homes.
“My take is that because builders and iBuyers account for more inventory, that leads to a faster correction. We’re one of them, we’re an iBuyer,” Kelman says. “We notice immediately when fewer people are on our website and fewer are signing up for tours…We’re sitting on $350 million worth of homes for sale that we bought with our own money, or worse bought with borrowed money. And what we always told investors is that we would protect our balance sheet by acting quickly. We don’t have hope as a strategy. We immediately started marking down things.”
And if they mark prices down, the rest of the neighborhood will have to as well to compete. This has good and bad consequences. It’s good if it creates more inventory and housing becomes more affordable for those buyers who got priced out of the market in the last 2 years. It’s bad because these new “comps” will bring the value of your home down so if you are a homeowner or potential seller, you’re not going to be happy.
Right now inventory is still pretty tight in most areas. So even though the market is correcting, prices are not going down too much in sought after areas. Where I am for example, in the DC area, prices are not escalating like they were but values haven’t come down too much yet. Especially if the house looks good and is priced correctly.
But if investors start offloading their inventory that they collected over the past 2 years at a discounted rate, this could change.
And the iBuyers themselves won’t lose as much as you think if they sell for less because they charge the sellers a “service fee” in exchange for a speedy transaction which will buffer any possible loss.
This is one of the many issues that arise from a large investor manipulating the housing market. They simply have too much power and control and the rest of us suffer the consequences.
“As soon as demand weakened, we were marking properties down, and that drives prices down. Every other home for sale in a neighborhood where we marked the listing down now has a comparable sale that every buyer is going to know about and talk about,” Kelman says.
It’s like he’s proud of this. What do you guys think?
We know by now what happened to Zillow and their failed iBuyer program. They got out as soon as they realized they were stretched too thin.
It sounds like Redfin is trying to recoup losses by offloading their properties quickly. Comment below and give us your thoughts on Redfin and Kelman’s statements.
Let’s pivot to bankrates article “Housing market predictions: the forecast for the next 5 years” and quickly see what they are saying
First let’s talk mortgage rates.
Lawrence Yun, the NAR chief economist, thinks that seven percent looks to be the level for the rest of this year and most of next year. And Within two years, the rate should return to five-and-a-half or six percent.
Danushka Nanayakkara-Skillington, the assistant vice president, forecasting and analysis for the National Association of Homebuilders (NAHB) agrees, predicting rates will drop to about six percent by the middle of 2024.
If this is true, this is good news and a reason to buy now when you can negotiate a good deal without all of the competition and then refinance when rates go down in a year or 2. You may even want to entertain using an ARM (adjustable rate mortgage) now with a lower interest rate and then refinance to a 30 year fixed in a few years. But please talk to your lender about this as everyone’s situation is different and they can best advise you.
As far as home prices, Yun foresees zero or minor changes in purchase price tags on a nationwide basis next year, with increases or decreases of about five percent. The only exception is California, he says, where the market could see 10 percent declines.
Overall, in five years, he expects prices to have appreciated a total of 15-25 percent.
Greg McBride, CFA, Bankrate chief financial analyst, predicts home prices will average low- to mid- single digit annual appreciation over the next five years. This rate of appreciation, he says, is consistent with the long-term average of home prices increasing by a rate that’ hovers a percentage point above the inflation rate.
AS far as the housing market as a whole, Yun predicts that sales will be at a low point next year, with only 5.3 million units sold, he foresees a gradual increase afterwards, up to an annual six million units by 2027. He believes the housing shortage will continue this year, with the supply balancing out by five years.
HE also says he believes the market will continue to be a sellers’ market while housing inventory remains low.
By five years, though, he foresees a balanced market, where neither the buyer or seller holds sway. Instead, the negotiating power between parties will be more equal and depend on the individual case.
And Yun isn’t the only one who believes home prices may increase in the next year. Corelogic just came out with their U.S. Home Price Insights for November 2022 where they forecast that home prices will increase on a year-over-year basis by 3.9% from September 2022 to September 2023.
They think the top markets at Risk of a Home price decline are Crestview-Fort Walton Beach-Destin, Florida with a very high rise (70% plus probability), followed by Bremeton-Silverdale, Washington; Bellingham, Washington; Eugene, Oregon and Tacoma-Lakewood, Washington.
Do you live in any of these places? IF so, please comment below and let us know if you agree with them.
I hope you got some value out of today’s video. The bottom line is-
If Redfin starts unloading their properties at a discount and Yun and others are right about the future of mortgage rates and prices, it may be a good idea to buy now while the competition is low.
Let me know your thoughts and what is happening in your neck of the woods. Are prices going down? Do you see any Redfin properties for sale? Or are you still seeing multiple offers like I am.
The best way we can really see what is happening in the housing market is by you guys letting us know what you are seeing where you live.
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Thanks for watching. Bye!