‘It’s a remarkably uncertain time’: Redfin CEO warns of rapidly cooling housing market – including contract cancellation

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After a stellar two-year run, the housing market is sputtering as buyers retreat strongly. A real estate chief said the market is indeed price-correcting and it will be difficult to close a deal as more contracts fail.

With the Federal Reserve raising benchmark interest rates, “demand fell sharply in May and June… [as] buyers were totally panicked,” Redfin RDFN,
-5.75%
CEO Glenn Kelman told MarketWatch in an interview.

Since then, the housing market has recovered somewhat, he noted, but “we will still have a very high cancellation rate, even for the deals that are under contract.”

“It’s just hard to put together deals because the economy is so volatile,” he added. “It is a remarkably uncertain time.”

“It’s just hard to make deals because the economy is so volatile.”


— Glenn Kelman, Redfin

In response to buyers withdrawing from the market, sellers have also become increasingly anxious about listing.

New home listings are down 15% in the four weeks ending Aug. 21, according to a report published Thursday by Redfin. That is the biggest drop in quotes since the start of the pandemic.

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That puts some pressure on housing supply, Redfin said, as the number of homes for sale fell 0.6% from the previous four-week period.

To quickly find a match, sellers are pricing their homes more aggressively, with the median asking price of newly listed homes falling 5% from the record level reached in May.

But not all sellers can find enthusiastic buyers. In some hot pandemic markets like Boise, Idaho, 70% of homes for sale were slashed in July, Redfin said.

Builders are also doing their best to entice buyers, Kelman added, and “just as aggressively” with price cuts as sellers of existing homes.

“Some publicly announced price corrections underestimate how drastic the correction has been.”


— Douglas C. Yearley, Toll Brothers

During a Q3 call on Wednesday, Toll Brothers TOL,
-4.02%
Chairman and CEO Douglas C. Yearley said the company “started modestly raising incentives” in recent weeks, with an August average incentive of about $30,000 for a $1.1 million home.

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“Some of the price corrections that have been made public underestimate how drastic the correction has been,” Kelman added. Freebies such as granite countertops or appliances are not reflected in the listing prices.

But the cost of a home is still out of reach for millions of buyers today.

Home affordability has fallen to its lowest level since 1989, the National Association of Realtors noted.

The median selling price was $371,125 in August, according to Redfin, up 6% from a year earlier. Selling prices are down 6% after peaking in June when the median home price was $394,775.

“In 2007 we predicted that there would be a crash. We sold houses to people who couldn’t afford them.’


— Glenn Kelman, Redfin

For a household taking out a 30-year, fixed-rate mortgage with a 20% down payment, the monthly payment for a typical home is up 54% from a year ago to $1,944, according to the NAR.

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According to Freddie Mac, the 30-year fixed-rate mortgage averaged 5.55% on August 25. A year ago it was 2.68%.

Given the weaker data and with buyers — and now sellers — pulling out, industry experts are calling it a housing market recession.

But that doesn’t necessarily mean the market is collapsing, Kelman said.

“In 2007 we predicted that there would be a crash. We sold houses to people who couldn’t afford them — where they couldn’t even make the first mortgage payment,” Kelman said. “And that’s just not the case. Right now there are trillions of dollars and people who buy houses have great credit scores.

According to the New York Fed, 65% of the $758 billion in mortgage debt issued in the second quarter of this year was to borrowers with a credit score of more than 760.

Do you have ideas about the housing market? Write to MarketWatch reporter Aarthi Swaminathan at [email protected].

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