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After two years of abnormally agile home sales, the real estate market has begun to slow as macro and microeconomic factors lock consumers into a delicate game of chicken with homesellers’ leverage hanging in the balance.
“It’s really hard to put deals together, because you’re absolutely right, that the buyers are looking at the headlines about what’s going to happen in the future,” Redfin CEO Glenn Kelman said during his CNBC ‘Power Lunch’ appearance on Wednesday. “And the sellers are thinking about the home down the street that sold for a song four months ago or eight months ago.”
Kelman said current market factors have given homebuyers hope that steep price declines are around the corner, which led to contract cancellations thwarting 16 percent (or 63,000) of home sales in July. The CEO said this trend is likely to continue as buyers navigate economic uncertainty and carefully track market trends to identify the optimal time to buy.
“Some of it is economic uncertainty where their portfolio has gotten waxed in the stock market, or they’re worried about their job, but much of it is that they’re just reading the same headlines that you and I are discussing now that they see that prices are falling, that time is on their side,” he said. “If they pull out of this deal, they’ll be able to get a better one in two or three months.”
“They might say the appraisal came in low, they might say that they found something in the inspection that they don’t like — there are all sorts of ways to get out of a deal if you don’t want to do it,” he added. “Sometimes people are walking away from their escrow money… Right now I think they’re just using the inspection contingency and the financing contingency.”
Jacksonville, Las Vegas, San Antonio and New Orleans are being hardest hit, with one in four buyers canceling their contracts. Kelman said the impact of ‘The Great Reshuffling’ that took place during the earlier days of the pandemic is starting to show up in markets like Boise, Idaho, that are experiencing a sudden decline in buyer demand.
“A place like Boise is off 40 percent in sales. So it just went boom. And then it went bust,” he said. “There’s so little volume there, that when all these Californians come streaming in, it just sends the housing market haywire.”
“But we’re also seeing real softness in California. Prices are down in the San Francisco Bay area,” he added. “They didn’t go up that much during the pandemic, and so they don’t have as much room to give up. And then in Southern California, you’re also seeing really soft demand. Sales are off 40 percent in San Diego, which is unusual.”
Looking forward, Kelman said it will be difficult to predict where the market will land in 2023 because everything is skewed to a historically abnormal 2020, 2021, and to a degree, 2022.
“A bunch of people who [were] going to move, got in gear and did it in 2020 and 2021,” he said. “So I don’t know that activity is really that low. It’s just low compared to incredible highs. It’s a tough comp right now.”