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Opinion | Homeowners aren’t ready to face how much less their houses are worth

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Over the years, we’ve seen plenty of bizarre statements from company CEOs announcing layoffs and business setbacks. But perhaps the strangest is from Redfin CEO Glenn Kelman on Wednesday. the company had let go It cut its workforce by 13%, closed its iBuying division, which bought homes directly from consumers, and put it back on the market with minor renovations.

Anyone who’s ever watched a house-flipping show knows how difficult it is to make money that way. Around this time last year, Zillow closed its own iBuying division. lose bucket moneyBut this is not how Kelman described his move. “We are closing his RedfinNow, iBuying business,” he said. in a statement“Because keeping profits as interest rates rise makes housing offers insultingly low.”

Insulting! What’s insulting about giving people the market price of their homes? Homeowners realize mortgage rates have skyrocketed thanks to aggressive Federal Reserve policies It seems that latest report From Freddie Mac. We also recognize that people can’t afford to pay that much for housing when interest rates go up because the owner already has the house and mortgage.

Still, I don’t think Kelman is crazy. he is probably right. Many homeowners will be insulted by what Redfin can reasonably offer. His statement is strange because the housing market is in such a strange place. And finding the new normal requires some ugly psychological and financial adjustments.

as me noted in June, most American homeowners only know a world where interest rates are steadily falling. Mortgage interest rates hit all-time highs in the early 1980s. Under Paul Volcker he did so as the Fed aggressively tightened monetary policy to combat record inflation. Since then, interest rates have followed a long downward trend. Despite some brutal disruptions such as the bursting of the housing bubble, prices have correspondingly trended upwards. 2006 onwards.

But during the financial crisis, the Federal Reserve stepped in with easier money, and by 2022 most homeowners will be sits in a good portion of the stockThis made homeowners feel prosperous and safe. It also probably boosted consumer demand, as those feeling wealthier were more willing to spend more money. And despite memories of the crash, most people still take for granted that housing is a great investment and a way to keep the rain out of your head.

These trends could not last forever. During the pandemic, my credit union was offering his 15-year fixed-rate mortgage at less than 2% p.a. myself money to buy a house. We are currently in the midst of a sharp reversal and should adjust our prices accordingly.who could have gotten a mortgage in 3-4% A few years ago, you now have to pay more than double that. To keep your mortgage payment the same, you’ll need to cut your home cost in half.

Well, no one should worry so much about monthly payments. Older homebuyers who have built up some wealth are less sensitive to mortgage rates. But unless prices drop significantly, the market will be starved of new entrants, demand will fall, and eventually prices will fall.

Homebuyers aren’t ready to realize the extent of their loss yet, so they don’t sell their homes unless they really need to. Especially since the transition would mean abandoning the ridiculously low mortgage rates that prevailed before the Fed got serious about fighting inflation.

Many of the property listings in my neighborhood now have an eerie quality, like looking at the twinkling lights of a dead star. is completely inadequate for the size of .Although supplies remain quite low by historical standards, inventories are up and sales are down by almost a quarter.the landlord seems sitting in the market, Waiting for the return of the good times. This explains why the median selling price is up year-on-year, down only about 7% from his June high of $413,800 to his September high of $384,800. It helps to explain.

Of course, that 7% decrease might be a good thing. If Interest rates return to their original levels fairly quickly. Homebuyers can struggle with high payments for several years, after which they can refinance for more affordable housing and sellers can avoid a blow to their personal wealth. That’s one of his ways to get out of this strange market.

But interest rates are unlikely to return to pandemic levels. The public health crisis is over and the Fed is now in anti-inflation mode. We homeowners may never be as rich as we felt in 2020 and 2021. So the only way the market can get back to normal is, ultimately, to painfully admit that we are poorer and move on.

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