When the Federal Reserve began raising interest rates last year, many economists worried about a steep economic downturn and subsequent hit to the housing market.
The economy held up surprisingly well, outperforming all expectations. But, now it appears that 40-year-high mortgage rates are indeed slowing down the housing market, at least according to Redfin (NASDAQ: RDFN) CEO Glenn Kelman.
Kelman says that because of high mortgage rates, people aren't moving which means they also aren't listing their homes.
"Sales volume couldn't be worse. The only people moving right now are the ones who absolutely have to," Kelman said in an interview with MarketWatch.
Kelman says that part of the problem is that despite higher mortgage rates increasing monthly payments, the underlying prices of the homes haven't dropped much. This prices out potential buyers, and makes it harder for companies such as Redfin Corp and Zillow Group Inc (NASDAQ: ZG) to sell homes.
Zillow's and Redfin's stocks have rallied impressively this year, up about 53% and 115%, respectively. But, recently it hasn't been so pretty - for example, Redfin's stock is down more than 40% in the last month following the company's disappointing earnings results on Aug 3.
The silver lining is that high-interest rates and low buyer demand should eventually push housing prices down, opening the door for many first-time buyers. But, the higher interest rates will also make monthly payments higher, which could offset the drop in housing prices.