Toward the end of last year, things started to shift. More and more economists, executives, and analysts changed their tune, signaling that this year’s housing market will be better after a disastrous 2023 when existing home sales fell to their lowest mark since 1995 at a time when the population is 30% bigger.
The cofounder and chief executive of realty giant Compass, Robert Reffkin, insisted that the housing vibes are good — or at least, better than they were — in an interview with CNBC yesterday.
“This year, all the key signs are pointing in the right direction,” Reffkin said, after quickly discussing that dire existing home sales figure.
Reffkin pointed to inventory as one of those key signs indicating that the market is thawing, saying “more inventory equals more sales.” There is 7% more inventory and 5% more homes under contract today than the same time last year, Reffkin added.
As the chief executive of a major residential real estate brokerage, Reffkin would certainly benefit from a housing market recovery. After going public amid the frenzy of the pandemic-fueled housing boom in 2021, Compass’ stock has fallen more than 80% and it has had major layoffs in the years since.
Nonetheless, Reffkin is correct in pointing out that signs are positive for more housing activity. Mortgage rates have fallen from a recent peak of just above 8% (a more than two-decade high) to the current average 30-year fixed mortgage rate of 6.87%. “It’s basically free marketing to the entire real estate market, saying that 6.8% is a good deal,” Reffkin told CNBC.
Reffkin said there’s already more activity, with sellers being “more realistic” in pricing their homes than they were last fall. “That modest buyer strike [in the fall] led to 39% of all homes in the fall having a price drop,” Reffkin said. (He did not make clear on air which data he was citing, and Compass didn’t immediately respond to Fortune’s query.)
“Prices are better now than they were,” he said, indicating that buyers are slashing or at least adjusting their prices. On the other hand, the latest data released by the National Association of Realtors shows the median existing-home sales price rose more than 4% from December 2022 to $382,600, the sixth consecutive month of year-over-year price increases.
In an earlier housing market report, Zillow’s chief economist noted that price cuts were “still abnormally common as sellers respond to high rates.” In November, 22.6% of listings posted a price drop, an “unseasonably high” figure, the report found. Redfin has previously reported as much, too, finding that in the four weeks ending Nov. 5, nearly 7% of home sellers dropped their asking price.
Still, we may continue to see more demand for new homes rather than existing homes for two main reasons, Reffkin said. First, people want new things, simple as that. And despite recent improvement, “there’s just not enough homes available for sale in the existing home market,” Reffkin said. The lock-in effect, an economic phenomenon where homeowners refuse to sell their homes for fear of losing their low mortgage rates, is going strong.
“This time last year 72% of homeowners were locked in at 4% or below—now it’s actually 59%,” he said. “And so although it’s still high, it’s much better than it was a year ago.”
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