Housing: ‘We’re going to go through a painful, volatile period,’ Redfin CEO says

Redfin CEO Glenn Kelman joins Yahoo Finance Live to discuss the housing market, home price volatility, mortgage rates, inventory, and home builder sentiment.

Video transcript

BRAD SMITH: White hot, then ice cold. The housing market has had a volatile year, to say the least. Now as houses sit unsold on a cooling market, there may be early signs that people are willing to start buying again. For more on this, we're joined by Redfin CEO, Glenn Kelman. Glenn, great to have you here with us. And thanks for taking the time here.

First and foremost, I mean, the company had just reported earnings as well. Give us a glimpse into where the market share and the anticipation to really build out the number of listings that Redfin has, where you've been moving that forward. As of right now, it sits at about 8/10 of a percent of US existing home sales units in the second quarter of 2022.

GLENN KELMAN: Well, that just means we have more room to grow, doesn't it? So market share gains accelerated in the second quarter. It's probably one reason that Redfin traded up. We obviously want to keep taking share that was highlighted by strength in our listings business. We list homes for 1%. We sell them for more money. The advertising campaign behind that has been really successful. So it's been a tough market. But Redfin keeps taking share, and we keep serving customers well, so I think we'll be fine.

JULIE HYMAN: Of course, on the other hand, the pie's getting smaller, right, Glenn, even if you're taking a larger slice of it. Something else you guys talked about this morning is that the number of homes in July that sat on the market for at least 30 days without going under contract was up 12 and 1/2%.

And we were talking earlier about the really rapid change that we have seen in demand for a number of different products, from retailers to semiconductor makers. And that seems to be happening in the housing market as well. Can you talk us through sort of the pace of the slowdown that we are seeing right now?

GLENN KELMAN: Well, it was really dramatic in May and June. I think it was underreported in the press. Housing used to be a very stable asset class. And now it's extremely volatile. And one reason for that is that it used to be that institutions accounted for about a quarter of the sales. But now it's about 1/3. You have more builder activity. You have iBuyers. You have real estate investment trusts, all active in the single family home market.

And they react much more quickly to changing economic conditions. If you've lived in a house for 30 years and raised your kids there, there's no way you're going to mark it down after two weeks on the market. But an iBuyer is going to price ahead of the market and mark it down every week until it sells. And so that just makes the market more like the stock market, more volatile, more up and down. Over the past few weeks in July, it's been coming back up because interest rates finally got below 5% again.

JULIE HYMAN: Glenn, what proportion of the market is accounted for by those folks you're talking about who are investors or hedge funds or private equity or what have you versus traditional home buyers?

GLENN KELMAN: Well, now it's about 1/3 of institutions accounting for sales, but that includes builders, too. Builders are very aggressive about selling their homes when they see inventory piling up.

BRAD SMITH: In a markdown kind of period, what would that mean for the listing fee? Is that revenue that you rely on ultimately for your business at Redfin as well?

GLENN KELMAN: Well, as you said, we get a smaller piece-- or excuse me, a larger piece of a smaller pie. So we just have to fight harder to grow our business. We try to train investors on market share gains because you get too much credit in a booming market for small share gains because you're just taking a small piece of a big pie. And you don't get enough credit in a down market when you're taking more share, but the pie itself is shrinking. And so the only way for me to stay sane is to really focus on share.

BRIAN SOZZI: Glenn, do you see a lot of price reductions starting to happen on the part of sellers?

GLENN KELMAN: Yes, especially in the pandemic markets. So if you look at Boise, Salt Lake, Denver, more than half the listings in June were marked down, which is a record. I think in Salt Lake City, it was 62 and 1/2%, which is just crazy.

So there were so many people who were pricing ahead of the market, looking at what happened last month and thinking it will happen next month. And they were just caught straddling a real correction in the market. It has been hard to have a reckoning with these folks. They think about what happened in October last year, what they saw their neighbor get in February of this year. And they still want that, and they can't get it.

JULIE HYMAN: Can you help put this expected housing slowdown in perspective, given the last housing slowdown that we had during the great financial crisis, which I imagine was a lot more severe than what you anticipate we're going to see this time around.

GLENN KELMAN: It is. I mean, there were so many for sales in 2008 because people were upside down on their mortgage. Right now, the people who bought homes have great credit scores. They have incredible amount of equity, trillions of dollars of equity. So they aren't going to be the foresellers. The only foreseller are the ones that we already talked about. These are the folks like iBuyers, REITs, builders.

They are going to liquidate their inventory much faster, and they're the ones causing a correction more than anything. I mean, everyone is sort of spooked by the economy. But buyers seem to be coming back. So I just don't see the structural elements in place to cause a complete meltdown in the US economy the way that we had in 2008. It's not even close.

BRAD SMITH: Hybrid work environments certainly allowed for people to look for homes in different markets that were more affordable for them. Have we seen a settling to kind of that great migration that had taken place?

GLENN KELMAN: I don't think so. I mean, that probably buffered the real estate market through the early spring. When Nashville got too expensive, people went to Miami. When Miami got too expensive, they went to Tampa. When Tampa got too expensive, they went to Arkansas. And now you actually see some people looking abroad, trying to live in Mexico or somewhere else, because they're allowed to work from wherever they want. So as housing prices become more expensive in different American cities, people are going to keep migrating.

The other big demographic trend that's driving long-term housing demand is just the millennials coming of home buying age. They're having babies. They're starting families. They're going to want single family homes. And so I do think that we're going to go through a painful volatile period here. But the people still want to move. This is shelter that we're selling. It's not some digital asset.

JULIE HYMAN: And hopefully for those folks, maybe they'll be getting a little bit more affordable if we have-- not so great for you, but good for those--

GLENN KELMAN: Yes!

JULIE HYMAN: --folks who are [INAUDIBLE] the market.

GLENN KELMAN: Thank you. Thank you! It's good when home prices go down. Nobody sees that. And I'm not even singing my own song here. It's just what I believe.

JULIE HYMAN: It's certainly good for people who are trying to buy houses, that's for sure. It's gotten a little tough over the past few years. Redfin CEO Glenn Kelman, thank you so much. Good to get your perspective on all of this.

GLENN KELMAN: Thanks.

JULIE HYMAN: Thank you.