During his latest CNBC appearance, Compass CEO Robert Reffkin outlined the catch-22 of higher mortgage rates and why early pandemic boomtowns are facing a devastating bust.

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During his Thursday appearance on CNBC’s ‘Squawk on the Street,’ Compass CEO Robert Reffkin gave a cautiously optimistic assessment of the real estate market as the industry continues to wade through inflation, rising mortgage rates, and the return to a more normal sales pace.

Reffkin on CNBC on Thursday.

“So in March, existing home sales were down 2 percent year over year,” Reffkin said while noting the decline puts the market back in line with historical norms. “And that’s not a surprise at Compass. We’re the number one brokerage firm in the country, and we can see that buyers have accepted these mortgage rates as a new normal. There’s a lot of pent-up demand.”

Reffkin said Compass‘ website traffic increased 18 percent from the fourth quarter of 2022 to Q1 2023, and signals buyers’ growing commitment to navigating market challenges rather than waiting for a quote-unquote better time to buy.

However, would-be homesellers haven’t been able to make that same mental shift.

“Inventory exiting Q1 was nine percent — less than it was exiting Q4,” he said. “Nobody wants to give up their home in which they locked in [lower rates] years ago.”

“The fundamental issue is that 30 percent of homeowners are locked in mortgage rates at three percent or below,” he added. “Then you have 72 percent of homeowners locked into mortgage rates at four percent and below. If you have a three percent mortgage rate, you consider that a financial asset and you don’t want to lose it.”

Although existing-home sales and median home prices experienced single-digit declines in March, Reffkin said affordability continues to be an issue as homebuyers attempt to solve the age-old debate between buying and renting. The CEO said some buyers — especially those who can offer all cash — will be able to snatch up a home this spring. Meanwhile, others may be pushed back into the rental market for the time being.

“Affordability is a real issue on the sales side, and if you combine that with a lack of inventory, it’s driving people to the rental market,” he said. “Prices for sales were down in March a little less than 1 percent year over year [and it was the] same in February; however, sequentially, prices are up. Prices are up in March over both February and January. Rents are actually flat year over year.”

After covering the national trends, Reffkin acknowledged the impact of the market’s greatest challenges is different from market to market, with pandemic boomtowns experiencing major busts in buyer demand and temporarily-abandoned urban markets experiencing stratospheric for-sale and rental price growth as employers reverse course on remote working.

“The markets that are being hit most in terms of price are the pandemic boom markets,” he said. “As you mentioned, Boise, Idaho, Las Vegas [and] Phoenix, they’re getting hit the hardest.”

Reffkin then referenced a recent Redfin report about pandemic boomtowns and repeated the story of a Boise-based Redfin agent who noted a precipitous drop in homebuying demand after Silicon Valley Bank’s March failure.

“The Silicon Valley Bank impact it’s been there, but much less than expected. I think part of what’s hitting the pandemic boom markets is CEOs across the country asking their employees to come back to work,” he said. “I think people have realized is not about productivity, it’s about connectivity, and leaders have an obligation to develop their people and it’s harder to develop people virtually than in person.”

Watch the full interview below: 

Email Marian McPherson

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