Real Estate

published : 2023-10-12

Redfin CEO warns of 'rock bottom' real estate market, 'American dream' in jeopardy

Interest rates unlikely to ease by end of 2023, says Redfin CEO

Redfin CEO Glenn Kelman giving a speech at a real estate conference, taken with a Nikon D850

Renowned Redfin CEO, Glenn Kelman, has issued a dire warning about the state of the US real estate market.

In a recent interview, Kelman expressed concern over the 'rock bottom' economic conditions that continue to plague the housing industry.

According to him, the 'American dream' of homeownership is in serious trouble.

Kelman made it clear that he believes interest rates are highly unlikely to ease by the end of 2023, further exacerbating the challenges faced by homebuyers.

He stated, 'You'll have to ask the Fed when the market's going to get better, because it seems very unlikely that interest rates will ease by the end of this year. So, the only real question is whether we're going to catch a break entering the home buying season of 2024. But I think most people have written off the 2023 home buying season.'

Kelman revealed that the current 'rock bottom' conditions in the real estate market are not solely a result of the economy.

He explained, 'Consumers really adjusted to higher rates coming into the summer. And so, we had so many people back out at the beginning of the home-buying season who decided, 'I'm ready now, I'm going through with it no matter what.' And then rates went up again. And so we saw 20% to 25% of deals being canceled over the past four to five weeks because rates cleared 7.5%.'

A group of millennials discussing the challenges of homeownership, taken with a Canon EOS R

The implications of these challenges go beyond the immediate housing market concerns, as Kelman pointed out the impact on people's belief in the 'American dream'.

He emphasized, 'The bigger implications are that so many people have stopped believing in the American dream. One in five millennials believe they will never own a home. And if you don't have that conviction that you're going to get your piece, it's really hard to invest in the long term. It's really hard to believe that society is going to work out for you. I think we have to come together as a society, build more houses and figure out a way that [the] next generation is going to be able to buy into our society.'

Kelman's concerns are shared by others in the industry, such as 'Shark Tank' investor Kevin O'Leary, who warned of a real estate 'doom loop'.

The current situation is driven by a four-decade low in home affordability, with prices soaring by 40% since 2019.

The wealth disparity between generations is also a significant factor, with baby boomers owning more than 30% of American wealth while millennials own less than 20% upon entering the home-buying age.

To address the affordability crisis, real estate companies like Zillow have launched programs, like a 1% down payment option, aimed at helping potential buyers who have been priced out of the market.

However, Kelman and others believe that these programs fail to address the fundamental problems within the real estate market.

Construction workers building new houses in a fast-growing city, taken with a Sony Alpha a7 III

Kelman stated, 'Home affordability is a four-decade low. Prices are up 40% since 2019, and now interest rates have compounded that. And so I think the real issue for us is that this generation owns less than 20% of American wealth entering home-buying age. I'm talking about the millennial generation, whereas baby boomers own more than 30% of American wealth.'

Kelman believes that building more houses is crucial to tackling the housing crisis.

He mentioned that certain states, like Orlando and Las Vegas, have successfully implemented low regulation and partnerships with builders to ramp up construction, leading to increased relocation rates.

He argued, 'We have to figure out how to build more houses. And, mostly, it has been the red states where we have figured that out, where through low regulation and through a real partnership with builders, places like Orlando and Las Vegas have just been building like crazy, and that's where everyone's moving.'

Kelman concludes that the situation calls for a collective effort to ensure the 'next generation' can participate in society through homeownership.

He emphasized the need for society to come together, build more houses, and provide opportunities for the younger generation to invest in the long term.