When mortgage rates hit 5% expect a flood of housing inventory, says Compass CEO Robert Reffkin

NEW HOME SALES JUMPED 20% IN MAY VERSUS LAST YEAR THEY WERE UP MONTH OVER MONTH AS WELL LET'S BRING IN ROBERT REFFKIN. HE JOINS US HERE ONSET HE IS THE CEO OF COMPASS. >> GLAD TO BE HERE. >> THIS BRINGS ME BACK TO THE BEGINNING OF THE YEAR AND YOU SAID, YOU KNOW, THE BOTTOM IS IT FOR HOUSING. I WILL CALL IT RIGHT NOW SO FAR IT DOES LOOK LIKE THE DATA IS MOVING IN YOUR FAVOR BOTTOM OR NOT, IT DOES SEEM TO BE STABILIZING AND WE SEE SOME GREEN CHUTES WHAT ARE YOU SEEING ACROSS THE U.S. >> ACROSS THE BOARD, THERE ARE MORE BUYERS THAN SELLERS 6%, 7% MORTGAGE RATES ARE THE NEW NORMAL PRICES WILL INCREASE EVERY MONTH THIS YEAR VERSUS THE PRIOR MONTH. NOW IT IS 3% LOWER THAN IT WAS AT THE PEAK LAST YEAR. THE ISSUE THAT WE HAVE IS THERE IS JUST NOT ENOUGH INVENTORY AND THAT'S BECAUSE 30% OF HOMEOWNERS ARE LOCKED INTO MORTGAGE RATES AT 3% OR BELOW. AND 70% OF HOMEOWNERS ARE LOCKED IN AT 4% OR BELOW. GREAT TIME TO BE A HOMEBUILDER. >> YEAH. HOMEBUILDERS SEEM TO BE MOVING TO FILL IN THAT VOID TO THE BEST OF THEIR ABILITY ARE YOU SEEING THAT IN TERMS OF WHERE YOU ARE GENERATING SALES OR AGENTS ARE GENERATING SALES AS WELL. IF SO, HOW MUCH ARE THINGS LIKE INCENTIVES PLAYING A ROLE IN THAT >> BRINGING MORTGAGE RATES DOWN BY TWO POINTS IN A NUMBER OF MARKETS. THERE IS ALREADY A TREND OF NOT ENOUGH INVENTORY AND A SECOND TREND OF PEOPLE WANT THINGS MOVE-IN READY. THEY WANT HOMES PREPARED THERE IS A PRODUCT AT COMPASS WHERE WE PREPARE HOMES TO MAKE THEM STAGED, PAINTING, DEEP CLEANING AND MAKE THEM MOVE-IN READY. IT IS ONE OF OUR BEST PRODUCTS BUT NOW THERE IS NOT ENOUGH INVENTORY BECAUSE PEOPLE ARE LOCKED INTO LOW RATES THAT HOMEBUILDERS ARE MEETING -- THEY'RE MEETING THAT DEMAND. WE SAW LAST MONTH THE LARGEST AMOUNT OF HOUSING STARTS SINCE 2016 AND THAT'S BECAUSE HOMEBUILDERS, THEIR SENTIMENT INDEX IMPROVED FOR THE FIRST TIME IN OVER A YEAR. >> TELL US ABOUT TWO THINGS, TWO As, ARMS AND AIRBNB. SO ADJUSTABLE RATE MORTGAGES, ARE YOU SEEING PEOPLE PICK THAT MORE NOW THAT A LOT OF PEOPLE THINK THEY'RE NEAR THE TOP AS FAR AS WHERE RATES WILL GO THE LAST TIME RATES WERE THIS HIGH, IT WAS A LOT HARDER TO SORT OF MONETIZE A PROPERTY THAT YOU OWNED IF YOU WEREN'T GOING TO LIVE THERE ANYMORE? >> YEAH. SO WE'RE SEEING PEOPLE THAT ARE BUYING BECAUSE THEY HAVE A NEW KID, THEY JUST GOT MARRIED, ANOTHER LIFE EVENT OR A NEW JOB THAT YOU HAVE TO BUY INSTEAD OF SELLING THEIR PRE-EXISTING HOME, THEY'RE RENTING IT AND TAKING THE FINANCIAL ARBITRAGE OF HIGH RENTS AND LOW MORTGAGE RATES SO WE'RE DEFINITELY SEEING THAT, WHETHER IT IS AN AIRBNB OR NOT THE ISSUE WE ARE SEEING IS WE NEED TO HAVE AN UNLOCK OF INVENTORY. IT WILL PROBABLY HAPPEN WHEN MORTGAGE RATES GET TO 5.5% AT THAT POINT, I EXPECT THERE TO BE A FLOOD OF INVENTORY IN THE MARKET. >> WHAT ARE YOU SEEING ON ADJUSTABLE RATES >> SO ON ADJUSTABLE RATES, WE ARE SEEING AN INCREASE IN ADJUSTABLE RATES BUT THE TOPIC AROUND ADJUSTABLE RATES WHICH I THINK PEOPLE DON'T FULLY APPRECIATE IS THAT AROUND 30% OF THE PEOPLE THAT ARE LOCKED IN AT 3% OR 4% MORTGAGE RATES HAD ADJUSTABLE RATE MORTGAGES THAT ARE FIVE YEAR, SEVEN YEARS OR TEN YEARS SO THE VALUE OF A 5% ARM THEY GOT IN 2022, IN SIX MONTHS, IT'S NOT THAT VALUABLE ANYMORE. YOU ONLY HAVE A YEAR, YEAR AND A HALF I THINK THERE WILL BE SOME NEW INVENTORY ENTERING THE MARKET EVEN IF RATES DON'T COME DOWN BECAUSE OF THE ARMS THAT HAVE GAINED LESS VALUE OVER TIME. >> DYNAMICS AROUND AGENT GROWTH AND RETENTION. >> YEAH. SO WE'RE HAPPY TO SAY THAT EVERY MONTH IN THE QUARTER WE HIRED MORE AGENTS THAN THE MONTH BEFORE EVERY MONTH IN THE QUARTER WE LOST LESS AGENTS THAN THE MONTH BEFORE SO IT IS A GOOD TIME FOR COMPASS. IT IS STILL A COMPETITIVE ENVIRONMENT. THERE IS 1.5 MILLION AGENTS IN THE COUNTRY. 5% OF THEM LEFT THE BUSINESS THAT SAID, COMPASS AGENTS ARE OUTPERFORMING. >> STOCK IS TRADING AT JUST ABOUT 350 A SHARE. INVESTORS MISSING SOMETHING HERE HOW DO YOU REACT TO THE FACT THAT WE HAVEN'T SEEN THIS STOCK? IT'S SOLD OFF DRAMATICALLY. >> YEAH. LOOK, WE -- WE IPOED IN THE HOTTEST USA MARKET MAYBE IN HISTORY. THE ENVIRONMENT THAT WE EXIST IN RIGHT NOW IS ONE THAT -- WHERE THE BACKDROP IS MORTGAGE RATES WENT FROM AN ALL-TIME LOW, CREATING THE SHARPEST DECLINE IN REAL ESTATE TRANSACTIONS IN THE COUNTRY. THERE ARE MANY BROKERAGES THAT AREN'T SURVIVING I'M REALLY PLEASED TO SAY

Channel: CNBC Television

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Id: LmmFwwHXeAQ

Length: 4min 54sec (294 seconds)

Published: Tue Jun 27 2023