While February's CPI report showed shelter inflation rose 0.4% month over month, a glimmer of hope emerged as housing supply increased for the first time in eight months, according to Redfin data. Redfin (RDFN) CEO Glenn Kelman joins Yahoo Finance Live to shed light on the housing market's uncertainties.
Kelman identified supply as the "primary problem," but notes "a tiny break in the inventory log jam." He predicts about a 20% uptick in individuals listing their properties –– "good news" that could positively impact housing affordability and demand.
Kelman emphasizes that a decline in interest rates would be a game-changer for housing affordability. With many homeowners locked into mortgage rates, he explains that inventory will "unlock" as rates fall. He adds that it is also "just a matter of time" before individuals who delayed moving due to life changes return their homes to the market.
Government assistance for homebuilders and homebuyers has also been a boon for the housing market, Kelman says. He offers California as an example: the state legislature did away with requirements like environmental reviews and allowed the sale of accessory dwelling units.
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
Editor's note: This article was written by Angel Smith .
Video Transcript
BRAD SMITH: Well, shelter price is rising 4/10 of a percent month-over-month in January as inflation remains sticky. But some welcome news also came for home buyers with supply rising for the first time in eight months.
However, the median home sale price did rise 5.3% nationwide, according to Redfin. Glenn Kelman, Redfin CEO, Joins us now. Glenn, great to have you on here with us today. I was really excited for this conversation. Still am.
And so first, let's start off with just what you're seeing in the housing market. How would you encapsulate what is taking place, especially, as Redfin sees the amount of realtors and property that exists already that buyers are starting to step up for?
GLENN KELMAN: Well, there's been a tiny break in the inventory logjam. As you noted, supply is up for the first time in eight months. That has been the primary problem. Even as interest rates have stifled home buyer demand, the real gate on home sales has been the number of homes for sale.
We see looking forward about a 20% year-over-year increase in people asking about listing their home. Whereas, home buyer demand is still down year-on-year. That's good news. We need more listings, especially, of single family homes. Investor demand has been really strong. And consumer demand is still strong enough that prices keep going up.
Home affordability is the big issue for almost every home owner and every potential home buyer. We need more supply.
SEANA SMITH: Glenn, what's it going to take to get more supply? What level do you think mortgage rates need to fall to in order to really move the needle?
GLENN KELMAN: Well, there's two factors. And the first is the one that you mentioned. There is so much rate locked inventory. So as rates decline from 7% to 6% to 5%, that will unlock more inventory. But also, it's just a matter of time. There are so many people who deferred their moving plans in 2022 and 2023.
And at some point, as parents' age, as people split up, or get married, and need a larger house, because they're having a third child, you are going to see more homes hit the market. So many of the customers that we're talking to today still don't want to give up their 30-year mortgage at 22.5% or 3%. But they've just outgrown the house. And they, finally, have to let go.
So I do think that even if interest rates don't come down significantly, we are going to see a modest uptick in inventory. But to see a big gain, you're going to have to see a real drop in mortgage interest rates.
What the Fed did in 2020 and 2021 will have a 30-year tail on it. There's going to be low supply for a long time to come unless America really gets religion again about building houses.
BRAD SMITH: And so Glenn, with that in mind, we were talking a lot about existing inventory. But what would you like to see from the counterparts in the new homes and that part of the market? Your counterparts there, who are responsible for building up a lot of these new homes.
GLENN KELMAN: Well, the builders are building everywhere they can. They've had great years over the past couple of years, even as the rest of the housing industry has struggled. And really, it's been the government that has stepped up over the past few years.
First that happened in California, where we saw a NIMBY legislature really do an about face and say, we're not going to have all the parking requirements. We're not going to have all the environmental reviews. We're going to allow accessory dwelling units. We're going to allow lots of construction near transit.
That was a breakthrough that has now been mirrored in the federal government. If you listen to President Biden's State of the Union address a couple of days ago, he outlined a plan to clear the way for more construction. And that has been a real issue for progressives. Many Democrats who favor affordable housing have had real issues around cutting the red tape for builders.
And now, that is not just a local issue. It's a federal issue. So I think there's real momentum in the government to do this.
SEANA SMITH: And there's also-- he also put forward the idea of providing a $10,000 tax credit for first time home buyers and people who are selling their starter homes. I'm curious how big of an impact you think that would potentially have on housing.
GLENN KELMAN: Well, in 2009 and 2010, President Obama did something similar. And we were just at the absolute bottom of the great financial crisis. And it had a real effect on the housing market. I still remember the day that those incentives expired. And there was another drop.
So I do think it will have a meaningful impact on the housing market, if that legislation is passed. Of course, it's still to be determined whether Congress can get everything done.
BRAD SMITH: Yeah. What do you say, Glenn? Should potential home buyers bank on that legislation being passed here?
GLENN KELMAN: I don't know about that. I wouldn't bank on any legislation being passed right now. The government is so dysfunctional. But I still think it's very positive that we're having this conversation at the federal level. Definitely, at the local and state level, it has been a massive issue.
Mayors have lost their jobs over housing. But it hasn't really affected federal politics. And now, I think there's a real bipartisan consensus. Both Republicans and Democrats want to build more housing. That is good news for the housing industry. It's good news for millennials, who really need a place to live.
SEANA SMITH: And, Glenn, we've seen it from the data that rental prices are going up, because people simply cannot afford homes. I'm curious how you see the rental market shaping up and whether or not this trend that we saw emerge here last month of an uptick on a year-over-year basis is going to continue here into the spring season.
GLENN KELMAN: I think asking rents are going to soften, just because there's more supply coming online. If you talk to the property management companies that manage all these big apartment buildings across the United States, they are worried about vacancy rates.
So we have lots of supply on the rental side coming online. It's really on for sale side, where we're still jammed up.
SEANA SMITH: All right. Glenn Kelman, always great to talk to you. We look forward to having you back again soon.
