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Mortgage rates back below 6 percent. Slow home sales gaining steam once again. Real estate brokerages and tech companies operating with leaner staff — and healthier margins.
Several of these seem like safe assumptions for the next nine months, according to some of the speakers this week at the Disconnect real estate gathering in Palm Springs, California.
But as industry professionals have have to relearn the hard way over the past three years, even the safest assumption can be upended by an unexpected turn in the market.
“What I love so much about [the] COVID[-19 era] is the permission to be incredibly wrong and still survive, and not to be held to judgment,” CEO Vanessa Bergmark of Red Oak Realty said. “Ever since 2020 … I stopped doing predictions. Unapologetically, it was like, no more.”
That said, decision-makers throughout the industry are still having to make decisions based on where the market has been, and where they think it may be headed in the months to come.
Mortgage rates more than doubled last year from their all-time lows in 2021, a change that amounted to a “seismic shift” in the market for investors, according to Jon Hong of Fifth Wall Ventures, a venture capital group that invests heavily in the proptech space.
And shifts like these can completely disrupt the way investors and business leaders make decisions, he said.
For the last two years, capital was so cheap that investors sought out companies that were able to bleed cash in the short run in an effort to scale quickly and gain market share, Hong said.
Today, interest rates are much higher. That newfound scarcity of capital is driving investors to value operations that are already profitable, or are on a clear path to profitability, he said.
“There will be companies that obviously don’t make it, but the ones that do, hopefully we’ll find and invest and support them along the way,” Hong said. “Competition will be less. Cost of capital is higher. There will be some sort of disruption.”
Some of that disruption could come in the form of bringing new home inventory to market.
It’s early, but Jeff Meyers, CEO of the homebuilder data provider Zonda, said builders have already begun to see a turnaround in the early weeks of 2023 that almost seems, to them, too good to be true.
Regardless of whether this recent trend holds, Meyers said that he expects builders will have a big role in replenishing the market with inventory — especially as more Americans with low-rate mortgages are loath to move in the coming years.
“We believe new-home will be a large percentage [of inventory] over the next five years, just because so many households in America are on these low, low fixed-rate mortgages,” Meyers said. “And homebuilding is a great solution.”
Bergmark, who by her own admission is shying away from predictions these days, says she does have a few general expectations for the next nine months.
Home sales will likely rebound at some point between now and the end of the year, she figures. And brokerages that have been putting off firings and layoffs may use the current down market as an opportunity to get leaner.
But it’s still not worth being overconfident about what the months ahead will look like, she cautioned.
“The beauty of it is, some of us are going to die, some of us are going to evolve, and no one is right — ever,” Bergmark said.