Redfin CEO predicts Federal Reserve’s inflation battle will impact housing supply for generations

Redfin CEO predicts Federal Reserve’s inflation battle will impact housing supply for generations

The real estate market is showing signs of recovery as the spring home buying season gets underway.

Mortgage rates fell for the second week in a row, falling to their lowest level in more than a month. The average rate on the reference index Fixed mortgage over 30 years fell to 6.74% from 6.88% the previous week, according to Freddie Mac.

And as mortgage rates fall, supply begins to rebound. New listings hit a 17-month high in February, while the total number of homes for sale hit a one-year high, according to Redfin (RDFN).

This is an improvement from last year’s depressed levels, but supply and demand remain far from balanced. The culprit: the side effects of the Fed’s aggressive rate-raising campaign.

Leading economist Gary Shilling told Yahoo Finance that the Fed’s change in interest rate policy has created a “perfect storm” for the sector, with higher rates causing potential sellers to stay put as many have locked in ultra-low rates during the pandemic or in previous years.

The giant gap between current and past mortgage rates is creating “artificial tension” in the housing market. “It won’t continue forever, but it’s certainly disruptive right now,” Shilling said.

Redfin CEO Glenn Kelman expects the Fed’s recent moves to impact the housing industry for decades, warning it will take years to overcome the fallout from the bank’s aggressive rate-hike campaign central.

“Supply is going to be low for a long time to come,” Kelman told Yahoo Finance. “What the Fed has done…will last 30 years.”

Redfin CEO predicts Federal Reserve’s inflation battle will impact housing supply for generations

An aerial view shows a new housing development in Okatie, South Carolina, February 1, 2024. (AP Photo/Gene J. Puskar, File) (ASSOCIATED PRESS)

Lackluster supply has kept property prices high. The median price of used homes rose 5.1% in January from a year ago, with all four U.S. regions showing price growth, according to the National Association of Realtors.

Any hope of relief for the housing sector may be postponed. According to Oppenheimer’s John Stoltzfus, a string of higher-than-expected inflation numbers have strengthened policymakers’ arguments for delaying rate cuts. He told Yahoo Finance Live that he thinks the Fed won’t cut rates until at least its June meeting.

A late rate cut suggests, at least in the short term, that mortgage rates are unlikely to fall much further, which could delay a more substantial rebound in the housing market.

“We need more supply. The real driver of home sales has been the number of homes for sale,” Kelman said. “If interest rates do not fall significantly, we will see a slight rise in inventory, but to see a significant gain we will need to see a real decline in mortgage interest rates.”

Moody’s Analytics projects a total housing shortfall of 1.5 million to 2 million units this year, with a shortfall of up to 1.2 million for single-family homes.

Sean Smith is an anchor at Yahoo Finance. Follow Smith on Twitter @SeanaNSmith. Advice on deals, mergers, activist situations or anything else? Email seanasmith@yahooinc.com.

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