Redfin Closes Its iBuying Division, but This Does NOT Mean The Housing Market Is Crashing

Redfin, one of the most powerful companies in the real estate industry, lays off 13% of its workforce and exits the home flipping business, does this mean the housing market is crashing?

No!

This means that Redfin cannot compete in the home flipping industry, or, simply put, Redfin is not smarter and more efficient than the rest of the real estate market like it thought it was.

Redfin and other tech companies assumed their superior technology would translate into profits in real estate, where the most important skill is local market knowledge and the most important skill is the profit incentive, and Redfin proved you cannot merely look at data to understand the market and cannot hire employees to work with the same intense competitive spirit as entrepreneurs.

Does this mean that now Redfin is seeing the future and identifying a housing crash?

Well, again, no. The letter that the Redfin founder sent to his employees predicts a 30% drop in sales volumes over the next year, which is consistent with what we have seen already, but that is hardly a crash. In fact, in its economic report, Redfin confirms the estimates of most economists that prices, despite the drop in sales volume, will still increase, although at a slower rate of 3.2%.

And as if on cue, as soon as Redfin exits the market, the mortgage rates have their biggest single day drop in history, declining from 7.25% to below 6.62%.

If you watch real estate news, you may see a graph that shows home prices going down! Something like this:

But, when you actually look at the data, it shows that the change in month to month rates, if annualized, would be a decrease, in this case that the monthly rate in September 2022 to October 2022 down from an annual rate of 15% to 10%, but this does NOT mean prices are to go down 5%, but that the decline in annualized rate was 5%.

For there to be a housing crash, we would see 2 negative trends, more delinquencies and vanishing equity, both leading to foreclosures. Yet, we have neither.

The national delinquency remains near all-time lows:

...and homes with negative equity, those that are upside down where more is owed than the value of the property, are also at all-time lows.
--
Bill Gross, The LAProbate Expert
I am a real estate broker in Los Angeles, CA focused on probate real estate and the leader of a team of over 1,100 agents nationally probate experts.

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