While the lack of listings continues to plague some housing markets, affordability is the biggest issue for renters, first-time buyers, and move-up buyers, Glenn Kelman, CEO of the Redfin brokerage firm said recently in a presentation to reporters and editors at the National Association of Real Estate Editors conference in Austin. The widening gap between rising home prices and lagging wages affects consumers across the entire country.
The search for affordable housing is driving a new migration pattern Kelman dubs the “Wrath of Grapes,” referencing the reverse migration of characters in John Steinbeck’s novel “The Grapes of Wrath.” Instead of moving from the Dust Bowl states to California, today’s financial woes push people from high-cost coastal cities to the middle of the country and the South.
No easy solution is apparent to increase housing affordability, which has both supply and demand elements affecting the issue.
“There’s no consensus on how to solve the affordability issue or what government action, if any, people want,” Kelman said.
A recent Redfin survey found that 64 percent of the 2,650 respondents want a government subsidy to help working-class families buy their first home. “People are less comfortable with some form of regulation that could limit buyer speculation,” Kelman said.
Data show that investors who have easy access to capital are buying properties that appeal to working-class families who can’t compete and have less access to credit, he said.
“There’s almost no will to liberate market forces on the supply side, so investors are running wild on the buy side, and on the sell side builders aren’t being allowed to keep up with them,” Kelman said.
For example, Redfin’s survey found that only 28 percent of respondents support policies to encourage density and that 52 percent support policies that limit density.
Redfin brokerage’s website tracks where prospective buyers live now and where they are looking. The five cities with the highest number of people looking to move away during the first quarter of 2019 were New York, San Francisco, Los Angeles, Washington, D.C., and Chicago. The five cities with the most interest from out-of-towners during that same period were Phoenix, Sacramento, Atlanta, Austin, and Miami.
“We’re seeing a mass migration from coastal markets to the middle of the country, and we’re seeing people fleeing high tax states,” Kelman said. “I used to think that this would depolarize the country, but the people who are leaving California and other blue states are actually the ones who are the most conservative and are fed up with the politics and the taxes. It’s actually deepening the divisions in the country.”
Polarization also occurs in the divide between renters and homeowners.
The financial strain to move from renter to homeowner and for move-up buyers is demonstrated by the sensitivity to mortgage rates, Kelman said. Redfin and others expected a strong correction in the housing market during the second half of 2018 because of rising mortgage rates.
“I’ve never seen a market react so strongly to an interest rate increase,” Kelman said. “The number of people requesting a home tour plunged when interest rates went up by only 50 basis points.”
When mortgage rates fell again, home tour requests rose. Kelman anticipates the housing market will continue to be volatile because of affordability issues.
“If buyers could easily absorb the cost of housing, then a change in interest rates wouldn’t affect demand so much,” he said.
Investment in real estate-related technology has grown from $59 million in 2009 to $5.8 billion in 2018, much of it focused on replacing traditional real estate agents. But Kelman said the human element is still important. Redfin is known for its lower commissions for sellers and recently introduced a Redfin Direct option for buyers to purchase a Redfin listing without using a buyer’s agent. But Kelman sees technology as a way to enhance rather than replace the work of real estate agents.
“We are a company of real estate agents, and ultimately we hope we are both the perpetrators and beneficiaries of change in the industry,” Kelman said. “We have a moral obligation to put our customers first and to provide our agents with a better product that will make real estate transactions more efficient.”
Twenty years from now, Kelman says the housing market could be even more volatile, but he also expects consumers to have more choices and a more streamlined online experience.