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The real-estate sector is in crisis amid the housing downturn. Expect more pain to come before things start to normalize, one housing chief says.
“There’s going to be a terrible consolidation,” Glenn Kelman, CEO of real-estate brokerage Redfin
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told MarketWatch in a recent episode of Barron’s Live.
But he added a caveat: “I do think it’ll be good for the industry.”
During the pandemic years of 2020 and 2021, many Americans jumped into the real-estate industry, Kelman recounted, so many that “we had more real-estate agents than listings by 2021.”
At this point, there are about million-and-a-half realtors trying to sell roughly over five million homes, meaning that they’re only doing five or six deals a year, which “isn’t a productive, fulfilling life,” Kelman said.
Some of the excess capacity in the sector has been released. In 2022, Redfin went through layoffs twice, responding to market conditions. Compass, another brokerage, announced a third round of layoffs on Thursday, to reduce expenses.
“I hope the industry is close to [becoming] right-sized and that things can get better from here,” Kelman said on Wednesday. “I don’t think that’s happened yet.”
‘It’s just a roommate generation now’
But for many Americans, high housing prices and mortgage rates make homeownership unaffordable. The Redfin chief executive sympathized with younger Americans priced out of the market.
“It’s just a roommate generation now, where people are staying with their parents, living in the basement or just shacking up with friends longer because home prices and rents have both gotten so far out of hand,” Kelman said.
There is some relief for those renters, as rents have fallen over the past few months.
Rents dropped for the fourth month in a row in December, Apartment List said in its monthly national rent report on Wednesday.
“Rents decreased in December in 90 of the nation’s largest 100 cities,’ the report stated, “with prices down by 3% month-over-month.”
And more homes are coming online to help with rental pressure.
But that’s also limiting the number of homes that go on sale, Kelman noted. He said that some of that supply came from home sellers who are withdrawing their listings from the market, and renting them out instead.
Investors still on the prowl for deals
Investor buying was a big topic of conversation during the pandemic, as many prospective buyers got beat out by companies and landlords with big pockets.
Kelman said that investors are still on the prowl, and are scouring disaster zones for deals.
In 2021, investors bought 24% of all single-family homes sold nationwide, a Pew Trusts report said last year.
Kelman said that some out-of-town investors today are tracking damaged homes, such as in Florida, to find deals.
When he recently visited a local office in Florida, Kelman said Redfin employees in areas affected by Hurricane Ian told him that investors were calling as the hurricane made landfall.
“We were trying to tour properties that the National Guard had closed …that were literally submerged. We would have had to visit the property by boat,” Kelman recounted.
“And these investors still wanted us to do a virtual tour where we’re using our phone to guide them through the property,” he continued.
“Even as the regular residents of Florida are calling us, almost in tears, because they’re standing on their second-floor balcony and they’re up to their knees and water …there’s another group of people coming from all over the world who see this as an investment opportunity,” he said.
While insurers and lenders are becoming wary of coastal properties that come with risks associated with climate change, such as flooding, “what was crazy to me is that investors were stepping in to fill that gap,” Kelman said.
Canada banning foreign homebuyers was ‘a bold move’
In response to investors’ buying frenzy, Canada, which is also dealing with an unaffordable housing market, decided to take a hard stance. Kelman said he was impressed.
At the start of 2023, the Canadian government enacted a ban on foreigners buying homes in Canada for two years. The law provides exceptions for purchases made by immigrants and permanent residents of Canada, CNN reported.
“I was impressed and shocked at what Canada did,” Kelman said.
“At one level, it’s just a massive self-inflicted wound to the economy,” he said. But on another level it’s “a real commitment to making housing more affordable for Canadians,” he added.
While the United States frets over a shortage in the supply of homes available for eager buyers, “Canada just said screw it. They pulled the cord,” Kelman said.
“And now that housing market is having a real correction and it’ll be terrible for the real-estate industry [and] for people who are about to sell their home,” he added.
“But it will mean that a new generation of Canadians is going to be able to afford a place, and so that was a pretty bold move,” he added.
Got thoughts on the housing market? Write to MarketWatch reporter Aarthi Swaminathan at aarthi@marketwatch.com
