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Redfin CEO Glenn Kelman on Monday suggested in a new interview with Fortune that an influx of real estate investors into the housing market over the previous two years amid the COVID pandemic is partly to blame for the dramatic price correction playing out in 2022.
The pandemic-era housing market frenzy saw real estate investors both institutional and independent pour into the market at unprecedented rates, while homebuilders broke ground on a huge amount of new projects, looking to capitalize on low borrowing costs and high demand.
Now that the frenzy has all but ended with United States home prices falling at the fastest rate since 2006, those same investors and builders are pulling back and looking to offload their investments, Kelman argued in an interview with Fortune published Monday.
“When the shiitake mushrooms hit the fan, you [investors] want to get out first,” Kelman said. “The way to do that is to figure out where the lowest sale is, and be 2 percent below that. And if it doesn’t sell in the first weekend, move it down [again].”
According to Kelman, investors including Redfin’s own iBuyer helped drive prices up faster during the boom, and are helping to drive them down faster during the bust. Kelman said he’s seeing the strategy play out in real time as Redfin deals with their own portfolio of iBuyer-purchased homes.
“My take is that because builders and iBuyers account for more inventory, that leads to a faster correction,” Kelman told the magazine. “We’re one of them — we’re an iBuyer.”
“We notice immediately when fewer people are on our website and fewer are signing up for tours,” Kelman added. “We’re sitting on $350 million worth of homes for sale that we bought with our own money, or worse, bought with borrowed money. And what we always told investors is we would protect our balance sheet by acting quickly. We don’t have hope as a strategy. We immediately started marking down things.”
Investors using borrowed money aren’t looking to wait around and see if prices will rebound, Kelman explained, and will do anything to offset weakening demand, he added.
“As soon as demand weakened, we were marking properties down, and that drives prices down,” Kelman said. “Every other home for sale in a neighborhood where we marked the listing down now has a comparable sale that every buyer is going to know about and talk about.”
The CEO attributed investors’ speedy pullback to a sort of whiplash effect from the 2008 housing crash that left investors weary of another downturn.
“I think that the religion people had from 1946 to 2008 — that housing prices always go up — is dead,” Kelman said. “My parents believed that it was literally inconceivable for prices to go down.”
That housing “religion” was broken by the 2008 crash, according to Kelman.
“So folks respond [now] to that [correction] with almost PTSD, and they pull back much more quickly,” he said.