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Why Experts Think a Housing Market Crash Will Drag Into 2023

by Ozva Admin
Housing market crash: Why experts think a housing market crash will last until 2023

Source: shutterstock.com/Lerbank-bbk22

Real estate mega giant red fin (NASDAQ:RDFN) is on a roller coaster ride this week. Yesterday morning, RDFN shares plunged in response to its recent earnings call, in which the company announced sweeping layoffs ahead of a housing recession that they expect to bleed in 2023. The shares have since regained their footing. . RDFN closed the day with a staggering 31% gain thanks to a strong inflation report. However, notions of a housing market crash continue to swirl, as Redfin leadership warns of housing companies “in the jungle”.

Redfin reported his third quarter financial results on Wednesday afternoon, leaving some investors notably spooked by the state of housing going forward. In fact, the real estate brokerage set out a pretty bleak timeline for the company for the next year or so. She, too, did not meet the third trimester orientation, quite easily.

Specifically, the company posted a net loss of around $90 million. That’s more than four times greater loss than it reported in the third quarter of 2021. According to CEO Glen Kelman, the company is expected to continue siphoning off cash, amounting to at least $22 million in additional losses, not including operating costs, for the full year 2022.

Redfin has been one of the main victims of this year’s rise in mortgage rates. With mortgage rates soaring as much as 7% this year, Redfin’s margin strength has shrunk dramatically. As a result, Redfin has made heavy losses in the now-closed segment of its business, RedfinNow.

Due to falling demand, the company was forced to sell many houses for much less than it bought them, resulting in record losses. Even now, the company has a sizable backlog of homes that it expects to sell by the end of the second quarter of 2023. This goes a long way to explaining why the company chose to shut down RedfinNow, just five years after it launched.

Perhaps most surprisingly, Redfin announced the dismissal of 13% of its staffadding to the 8% staff cuts made last June.

Housing is clearly in a delicate state, what does Redfin’s latest bearish indicator mean for the industry going forward?

Redfin’s leadership paints a bleak picture of the housing market crash

According to Kelman, the housing slump will likely put downward pressure on home sales over the next year, at least:

“The problem with demand is that housing has become unaffordable. From October 2020 to October 2022, the monthly payment for an American family buying a median-priced home increased by 71%. For that same family to rent a median-priced apartment, the monthly payment increased by 24%, still much faster than income growth. It will remain that way until the cost of housing drops substantially.”

Looking ahead, the future of housing remains at the whim of greater macroeconomic forces. The Fed’s interest rate hikes this year have been the main driver of rising mortgage rates, and at present the central bank doesn’t appear to be slowing down anytime soon.

Despite the better-than-expected October Consumer Price Index (CPI) report, many projections We still have the Fed to raise rates in December. This would equate to the seventh rate hike of the year, following the gargantuan 75 basis point hike in early November.

If the past year has been any indication, mortgage rates are likely to follow suit, with some economists projecting that 30-year fixed-rate mortgages will hit 10% sooner or later. This may mark a substantial decline in home values, with some regional markets expected to drop. up to 30% in value.

As of the date of publication, Shrey Dua did not hold (either directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publishing Guidelines.

With degrees in economics and journalism, Shrey Dua draws on his extensive media and reporting experience to contribute insightful articles covering everything from financial regulation and the electric vehicle industry to real estate and monetary policy. Shrey’s articles have appeared in such publications as Morning Brew, Real Clear Markets, the Downline Podcast, and more.

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