The U.S. housing market appears to be stuck in a deep freeze, according to Glenn Kelman, CEO of real estate giant Redfin. claims the market has hit “rock bottom” due to a combination of soaring home prices and rising mortgage rates that have significantly squeezed affordability for potential buyers.
This comes after a period of booming sales fueled by historically low mortgage rates during the pandemic. The Federal Reserve’s recent interest rate hikes to combat inflation have significantly increased borrowing costs. While this typically leads to falling home prices, current inventory remains low, keeping prices stubbornly high.
The result? A market slowdown unlike anything seen in recent years. “Sales volumes couldn’t be worse,” said Kelman. “The only people moving right now are the ones who absolutely have to.” Data seems to support this claim, with existing home sales reaching a near 30-year low in 2023.
Kelman predicts a prolonged slump, with a return to normalcy contingent on a decrease in mortgage rates. Unfortunately, with inflation remaining a top concern for the Fed, that scenario seems unlikely in the near future.
While some potential buyers might be waiting on the sidelines for a better deal, Kelman acknowledges that life events will continue to necessitate some movement in the market. “Four million people are going to move this year; that is the lowest number that we’ve seen in many, many years,” he said.
This situation presents a challenge for policymakers. While high prices can be a burden for first-time buyers, a significant drop in prices could also destabilize the market. Finding a solution to make housing more affordable without jeopardizing the overall market health will likely be a key focus in the coming months.
