- Redfin CEO Glenn Kelman said homes for sale are cutting prices twice as often as last year.
- Certain pandemic hotspot markets like Denver and Boise are seeing the most price cuts.
- Pending home sales fell 9% from May to June 2022, he said, when economists predicted a 1% decrease.
The housing market in pandemic hot spots like Boise and Denver reached a frenzy in 2021, with asking prices soaring and bidding wars pushing those high prices even higher. But as demand for homes in these places falters, they may be cooling down just as quickly.
Price cuts in Boise and Denver increased over 50% in June from the same time last year, Redfin CEO Glenn Kelman said Thursday in a conference call discussing the company’s second-quarter earnings.
Kelman also said 18% of all homes on the market nationally saw price cuts, double last year’s figure of 9%.
Another key sign of market activity, pending sales, also dropped. It dipped 20% between June 2021 and June 2022, Kelman said.
“Just from May 2022 to June 2022, the drop was a whopping 9%, when economists expected it to be 1%,” Kelman said. “Existing home sales may dip below an annualized rate of five-million units, a ‘Mendoza line’ for housing that we haven’t breached for a full year since 2014.”
These data points mean it’s getting easier for everyday people to score a home in these places — finally. A drop in asking price, which almost always correlates with an increase in the number of days a home is on the market, indicates that it’s getting harder to sell homes at the prices they were just months ago.
This not only means that buying a home is getting cheaper, but also that there is less competition.
Not all homes are created equal, though. It will be harder to get “beautiful homes on corner lots,” as those are still sought after, Kelman said. Meanwhile, he added, it might be much easier to get homes with a “funky layout,” which “now don’t sell at all.”
High mortgage rates stifled demand
This dropoff in demand can largely be attributed to an increase in mortgage rates, as the Federal Reserve attempts to quell inflation by raising interest rates.
“The breaking point for many buyers came on Friday, June 10,” when mortgage rates began to increase more than they had since 1987, Kelman said.
Between that day and the next Tuesday, rates rose by 0.73% over the course of three business days, increasing to more than 6% for a 30-year mortgage, a high point in 2022. It’s gone down since: as of August 4, the rate of a 30-year mortgage was below 5%. It hasn’t been that low since the beginning of April.
High mortgage rates in the second quarter, coupled with a continued rise in home prices, deters many people from even looking for a home.
While there is less demand for homes in general than there was a year ago, certain hotspots — like Denver — are seeing a particularly quick slowdown. Last month, the Colorado capital was one of the top 10 places that saw the highest rates of locals looking for homes outside the city, according to Redfin data. Meanwhile, Boise was rated one of the most overvalued cities in America by Florida Atlantic University and Florida International University in June.
Economists predicted that home prices would actually go down a bit in places that were popular for people to move to during the pandemic. People in these places are also looking to move to cheaper cities nearby, Redfin data shows, which could be an indication that these places are becoming too unaffordable to sustain this growth.
Reduced demand for homes diminished Redfin’s profits
The cooldown in the housing market has also taken a hit on Redfin’s bottom line.
As a result of the market slowdown, the company fell short of its revenue expectations by between $6 million and $43 million as a result of these market headwinds, Kelman told investors and analysts on the call.
Redfin’s earnings call comes after a tumultuous couple of months for the company.
As mortgage rates rose and prompted the housing market to slow dramatically, Redfin laid off about 8% of its staff, or about 470 workers, in June to cut costs and buoy revenue, which Kelman said Thursday cost the company $10.3 million in severance pay.