Redfin CEO: Vacation real-estate markets are ‘toast’ because of the pandemic as Airbnb owners rush to offload their homes


The Seattle-based brokerage said Thursday that its RedfinNow segment, which provides instant offers to home sellers to purchase their properties, would resume home-buying activities. In doing so, Redfin joins fellow iBuyers Opendoor and Offerpad in re-entering the housing market. Zillow
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+3.56%

also said Thursday that it would slowly relaunch its iBuying arm, Zillow Offers, in the coming weeks.

So-called iBuyers represent a small but growing share of the overall real-estate market. Nearly 7% of homes sold in Raleigh in the third quarter of 2019 were bought by iBuyers, according to a December report from Redfin, more than any other market nationwide.

Despite the coronavirus outbreak causing a downturn in home sales and listing activity through March and April, Redfin managed to beat expectations with its first quarter earnings as the company posted a net loss of $60 million. A year ago, Redfin had reported a larger net loss of $67 million, for comparison.

Read more: Mortgage rates rise from record lows — and signs are emerging that Americans are preparing to re-enter the home-buying market

The company’s CEO, Glenn Kelman, has said that the company’s tech offerings — including virtual home tours and open houses — will help it weather the pandemic. But while signs are starting to emerge that Americans may begin to re-enter the housing market, the speed of the recovery is far from certain. Fannie Mae
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+1.50%

reported that consumer confidence in housing had fallen to the lowest level since November 2011.

MarketWatch spoke with Kelman ahead of Redfin’s earnings release to discuss how the pandemic has affected the U.S. housing market and what will change about iBuying in the wake of COVID-19.

MarketWatch: Redfin has announced that the company’s iBuying division, RedfinNow, will resume operations following the coronavirus-related pause. What drove that decision?

Glenn Kelman: The reason we’re reopening it is because we think it’s a reasonably good time to own a house. Inventory is down 25% year-over-year, and home-buying demand is almost back to pre-pandemic levels. So we’re willing to take a risk again. I think we’ll lower the amount we’re willing to pay for a house, just to give ourselves more margin for error.

It was a harrowing couple of months. We had to ensure that the homes we had bought before the pandemic could still be sold once the pandemic had started, and you just can’t forget that easily. So instead, you just lower your offers a little bit, and that gives you some leeway.

MW: Is RedfinNow introducing any new procedures because of the coronavirus pandemic?

Kelman: I feel like what’s changed about our approach in iBuying specifically is just more about margin. You always knew that you had to have a margin for error — that there was a possibility of a downturn and that every offer you made had to account for that. But it’s another thing to actually go through that. So I think there will be more margin for error, but also less tolerance for a real project. If it’s a piece of work and it’s going to take six months to get it back on the market, you just can’t wait that long to figure out if you offered the right price to the homeowner. The market could change.

If you took a basketball shot, and six months later somebody told you whether it went into the hoop, you’d never get to be a better basketball player, right? So I think we’re just being more disciplined about the kinds of homes we buy. If you make a mistake on five houses, you should not buy 5,000.

MW: Do you think that the pandemic could make iBuying more popular, since it eliminates a lot of the in-person interactions the home-buying process typically requires?

Kelman: That wouldn’t be my guess. The homeowner who might be more anxious to sell their home, we’re going to find out whether more of them take offers in the next few weeks. But the other part you have to consider is the money man. The people who are providing capital for iBuyers may have a different appetite for risk on the other side of this. If iBuyers all come into the market at the exact same margin they were at two or three months ago, I think our acceptance rates are going to be really high.

But my guess is that they’re going to price the risk into their offers. And I don’t know how consumers are going to react. When we make offers, if we give ourselves just a little more room for all the risks that we’re taking, will people still accept it?


‘It used to be that working class folks could reasonably aspire to buy a house. And now I think buying a house has really become a privilege.’


— Glenn Kelman, CEO of Redfin

MW: You mentioned earlier that there’s been a resurgence in home-buying demand — what is driving that?

Kelman: Probably the bifurcation of the American dream. It used to be that working-class folks could reasonably aspire to buy a house. And now I think buying a house has really become a privilege, and the privileged class is doing better in this pandemic than the people who work in restaurants and perform other in-person services. So unemployment is going to be bad for one part of America; for another part, it isn’t as bad. And so that’s the part that’s buying a house.

And maybe the other dimension of this is just that there’s been an affordability crisis for so long. There’s structural reasons that there aren’t enough homes for enough homes in America. There is just a large number of people who have been trying to buy a house for two, three, four years, especially in really expensive markets. And if this pandemic is an opportunity to do that, with less competition, you’re going to take it.

Also see: Home prices could fall by as much as 4% because of the coronavirus pandemic, Zillow says

MW: What’s your take on the state of secondary markets and vacation markets right now?

Kelman: Toast. Those are going to be in tough shape. There’s a whole economy that was built around the liquidity there that Airbnb provided. You could get pretty deep into debt and still have somebody pay your mortgage every month because Airbnb and other travel websites were so good at finding someone to rent it out. And I don’t think many of those folks have the reserves that Marriott
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+16.31%

or that Hilton
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+8.71%

does.

Investors who own Airbnb properties are looking for immediate liquidity. At some level it’s Redfin, Zillow
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+3.52%

and Opendoor picking up where Airbnb left off. If they can’t get cash flow through one website, they’ve got to sell it through the other.


‘There’s a whole economy that was built around the liquidity there that Airbnb provided.’


— Glenn Kelman

MW: Some have suggested that the coronavirus pandemic could lead to a migration out of major cities, especially ones like New York that were hit hard by the outbreak. What’s your take on this?

Kelman: It’s on like Donkey Kong. There’s going to be a major move. That was already underway just because of the affordability crisis. People are leaving New York for Philadelphia and are leaving San Francisco for Sacramento and even Phoenix. Seattle was starting to lose people to Tacoma, which is just down the street.

I think some of it is about consumer wariness where we’re living in close quarters with other people. But most of it’s about employer flexibility. Employers that were really stuck on whether to let people work from home have gotten completely unstuck. And if you can work for Goldman Sachs
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+4.38%

, but not in New York, if you can work for Amazon
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+0.63%

, but not in Seattle, well, why would you pay the premium?

(This interview was edited for style and space.)



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America’s housing market is showing the first signs of trouble from the coronavirus pandemic


March started out as a strong month for the U.S. housing market — but by the second half of the month, the first indications that the coronavirus pandemic would weigh on home-selling activity began to emerge, according to a new report from Realtor.com.

In the weeks ending March 21 and March 28, the number of newly-listed properties fell by 13.1% and 34% respectively when compared with the same period a year ago, Realtor.com found. This is an indication that home sellers may be holding off on listing their properties right now.

The pace of home-price growth also slowed notably in the latter half of the month, according to the report. Home list prices were only up 3.3% year-over-year for the week ending March 21, and 2.5% for the following week. This represented the slowest pace of listing price growth since Realtor.com started tracking this data in 2013.

Read more:These mortgage borrowers will be ‘the first canary in the coal mine’ for a coronavirus-fueled foreclosure crisis, regulator says

(Realtor.com is operated by News Corp
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subsidiary Move Inc., and MarketWatch is a unit of Dow Jones, which is also a subsidiary of News Corp.)

“Our inventory and listing data can provide some early insight into how housing markets may be impacted by COVID-19, but the situation and reactions to it are still rapidly evolving,” Realtor.com chief economist Danielle Hale wrote in the report.

“The U.S. housing market had a good start to the year. Despite still-limited homes for sale, buyers were buying and builders were building,” she wrote. “The pandemic and virus-fighting measures appear to be disrupting that initial momentum as both buyers and sellers adopt a more cautious posture.”

Real-estate firms have taken steps to brace for the impact of the coronavirus pandemic. So-called iBuyers including Zillow
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and Redfin
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that purchase homes from sellers and then sell them for a profit had wound down their home-buying operations in anticipation of an economic downturn. Real-estate brokers, incuding Redfin and Re/Max
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, had also shifted toward virtual home tours as open houses became verboten in the wake of social-distancing recommendations.

And other recent reports have shown additional signs of a slowdown in the housing market. LendingTree
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released an analysis of Google
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search data analyzing the popularity of the search term “homes for sale” across the country’s 50 largest metro areas. Searches for “homes for sale” have fallen across all 50 cities in the study from their peak levels in 2020 thus far.

LendingTree estimated that these Google searches could drop some 63% compared with last year if the impact of the COVID-19 outbreak remains substantial for the next two months. A drop in web searches could presage a decline in home sales.

Also see:‘Landlords are just trying to pay bills like everyone else.’ The coronavirus could hit mom-and-pop landlords hard as tenants miss rent payments

Another sign that home sales will slump this spring: Mortgage applications. The volume of mortgage applications for loans used to purchase homes was down 24% compared with a year ago for the week ending March 27, according to data from the Mortgage Bankers Association. That’s in spite of mortgage rates being near historic lows. Comparatively, the volume of refinance applications was 168% higher than a year ago.

Before the coronavirus pandemic flared up, the U.S. housing market was on relatively solid footing. While the number of homes for sale remained low — constraining sales activity to an extent — demand among buyers was still quite high. Low mortgage rates had fueled an early start to the spring home-buying season, with homes selling four days faster in March when compared with 2019 levels, Realtor.com found.

The jump in jobless claims has stoked concerns of a repeat of the Great Recession and the foreclosure crisis that preceded it. But housing economists argue that this is unlikely to be the case.

Dispatches from a pandemic:‘Would you risk your life for a bagel?’ A New Yorker’s 5-point guide to surviving grocery stores during the coronavirus pandemic

“While housing led the recession in 2008-2009, this time it may be poised to bring us out of it,” Mark Fleming, chief economist for title insurance company First American Financial Corporation
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, wrote in a report this week.

Unlike in the 2000s, the housing market in the U.S. is not overbuilt, Fleming argued, making it less likely that a large swath of vacant properties will crater the home values for homeowners. Rising home values and stricter lending standards have also meant that homeowners are sitting on historically high amounts of home equity.

“The housing market will not go unscathed, as consumer confidence and a strong labor market are essential in the decision to purchase a home,” Fleming wrote. “Yet, this time, housing is a casualty of a public health crisis turned economic, not the cause of an economic crisis.”



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