Redfin CEO, Others Shoot Down Elon Musk’s Housing ‘Meltdown’ Theory

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Is the housing market on the verge of a “meltdown?”

Whereas that query has bedeviled the actual property business for the final a number of years, the doomsday camp simply added a well-known enterprise chief to its ranks: Elon Musk.

Musk provided his tackle the housing market Monday, writing on Twitter — the social community he purchased final 12 months — that “business actual property is melting down quick. Residence values subsequent.”

Musk predicted a housing meltdown in response to a thread on business actual property from enterprise capitalist David Sacks. And as is the case with something Elon Musk does, his tweet shortly drew wider consideration. Inside a day, it had greater than 1,300 retweets and greater than 10,000 likes. Lots of these responding appeared to share Musk’s view.

However actual property business consultants this week weren’t satisfied that Musk — who has famously bought off his personal residential actual property and claims to be sleeping on associates’ couches — truly is aware of what he’s speaking about on the subject of housing.

Maybe most notably, Redfin CEO Glenn Kelman jumped into the dialog Tuesday afternoon, arguing that business actual property is affected by a lack of demand — which isn’t an issue in residential actual property proper now.

In a second tweet, Kelman — who’s an lively Twitter person and has turned to the platform up to now to debunk misinformation — mentioned that “stock is at roughly two thirds the degrees it was pre-pandemic, from 2016-2019, throughout a robust vendor’s market.”

In different phrases, Kelman was arguing that residential actual property remains to be experiencing a vendor’s market now, the implication being {that a} meltdown doesn’t seem imminent.

Different actual property professionals agreed.

In a dialog with Inman Tuesday, Byron Lazine — a dealer and founding father of BAM — mentioned that he’d defer to Musk on subjects similar to area journey to Mars or how you can run Tesla. And he agreed that business actual property is struggling proper now. However he additionally mentioned that on the subject of the residential market, “it’s fairly straightforward to get caught up within the headlines.”

“The home-owner right this moment is a lot stronger right this moment than the home-owner in 2008,” Lazine, who was amongst these to quote-tweet Musk, mentioned.

Lazine went on to inform Inman that owners right this moment have extra fairness than they did throughout the Nice Recession. Many don’t even have mortgages, and most of those that do have rates of interest which might be far under what lenders at the moment supply. In consequence, Lazine continued, few owners would wish to take a “meltdown worth” on their homes even when the economic system additional soured.

Lazine additionally mentioned mortgage credit score was 9 instances extra obtainable at its pre-Recession peak than it’s right this moment, which means cash is just much less obtainable and extra regulated than it as soon as was.

On prime of all of that stock stays low, which has been a perennial drawback within the housing market recently.

All of which is to say that in Lazine’s opinion, present market situations bear little resemblance to the state of affairs that triggered the Nice Recession. Furthermore, most householders right this moment stand on comparatively agency footing.

Requested how a meltdown might theoretically start in housing, Lazine mentioned such a state of affairs would probably require large job losses on a scale not seen since a minimum of the early days of the Obama administration. However Lazine identified that proper now, the labor market is definitely unusually tight, which is the other of what may set off a housing meltdown.

Lazine wasn’t the one skeptic of Musk’s housing take.

Benjamin Miller, co-founder and CEO of actual property investing platform Fundrise, additionally quoted Musk’s tweet and argued that “there’s a vital and basic distinction” between business and residential actual property. In Miller’s view, the housing market proper now “is just present process the everyday financial cycle of each recession.”

In an e mail to Inman Tuesday, Miller expanded on his tweet, arguing that “Musk’s opinion appears disconnected from the housing exercise we’re seeing on the bottom.”

“In actual fact, housing costs have been growing because the begin of this 12 months,” Miller added.

Miller went on to say that in each recession, “costs fall lenders pull again.” That in flip causes costs to fall much more. Lenders’ pullback this time round has been much more vital due to the failure of Silicon Valley Financial institution in March, Miller additionally mentioned. These situations clarify some current knowledge concerning the housing market, however don’t essentially point out a coming “meltdown.”

And in any case, like Lazine, Miller believes present situations are merely completely different from those who led to the good recession.

“The way more conservative lending follow ensuing from the 2008 monetary disaster has sheltered the housing market from a lot of the downturn,” he mentioned. “Debtors have a lot increased credit score scores, bought with way more fairness, and usually locked in long-term rates of interest, which implies the housing market is way more healthy than most different sectors. To not point out the robust demographic tailwinds driving continued demand for housing from millennials.”

Financial consultants have additionally usually been skeptical in current months that some kind of housing meltdown is coming. And on Tuesday, analyst Hannah Jones informed Inman in an e mail that “unaffordability” is a significant theme available in the market proper now. In that gentle, each time affordability improves, “we see a corresponding uptick in purchaser exercise, suggesting that there’s appreciable pent-up purchaser demand.”

Hannah Jones

“Many consumers are ready on the sidelines, prepared to leap in as housing prices strategy their funds,” Jones continued. “That is prone to play out over the approaching months with consumers trickling into the market as house costs proceed to regulate.”

Jones added that offer and demand points have been a theme in actual property for a very long time, and whereas exercise could also be low for the time being, a low-supply dynamic “will hold stress on the housing market.”

Jones didn’t explicitly point out Musk, however the image she painted of the housing market — with demand excessive and provide low — is hardly one on the point of collapse.

Others on-line appeared to agree. Although a lot of Musk’s followers appeared to share his opinion, a lot of those that recognized themselves as housing professionals pushed again on Twitter.

Nonetheless, Musk shouldn’t be actual property’s solely prophet of doom as of late.

Over the weekend, for instance, Dave Burt — whose famed investing throughout the Nice Recession was chronicled within the e-book and film The Large Quick — informed CNBC that the actual property market could possibly be dealing with a significant correction. And he thinks flooding from local weather change might set off that correction.

“Our base case correction state of affairs results in house worth losses of about $800 billion in mixture phrases,” Burt mentioned. “So a fairly significant hit even to a $40 trillion market.”

And final week, JPMorgan Chase CEO Jamie Dimon instructed that banks with publicity to business actual property could possibly be in for a tough journey.

The feedback from Burt and Dimon must do with particular forms of calamities, however the level is that there are folks on the market who assume actual property is about to enter uneven waters.

Requested about doomsayers similar to Musk in addition to shoppers ready for a crash, Lazine instructed it could be a results of FOMO, or concern of lacking out.

“Due to the one main crash that we had within the 2000s, no one needs to be the man who buys too excessive and misses out on the prospect to purchase at historic lows,” he mentioned.

However Lazine additionally identified that housing has constantly risen during the last 4 many years, even factoring within the Nice Recession. The takeaway, then, is that there’s all the time a brand new all-time excessive sooner or later.

“Anybody shopping for on this market,” he mentioned, “they’re nonetheless shopping for underneath the subsequent all-time excessive.”

Electronic mail Jim Dalrymple II

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