Glenn Kelman is the CEO of Redfin, a self-described technology-driven real estate company, a modern way to buy and sell homes. He has been at the helm for almost two decades and does not appear to have lost his zeal, either during the Great Financial Crisis or now; he calls himself the luckiest person in the world.
It can’t be easy. Redfin shares reached a high of more than $95 a share during the pandemic and the corresponding real estate boom, but have since trended lower, settling at around $5.50. It’s been a tough ride; revenue fell last year and agents were cut. It goes beyond Redfin; the entire real estate world has suffered due to the increase in interest rates by the Federal Reserve. “Losing 40 percent of our officers is a tragedy,” Kelman said Fortune. “I feel personally responsible for it. I was the one who signed their offer letters in spirit, if not in fact. And I couldn’t grow the business to the point where I could keep them all employed… It’s just difficult when the number of homes sold in the United States drops from six million to four million.
Last year, existing home sales fell to their lowest level in 30 years. The housing market has stalled and may have just begun to thaw. Mortgage rates were the highest in 20 years and have since fallen, but are still high compared to pandemic rates. In the last week, mortgage rates have increased again, reaching the highest level in recent months, 7.50%. Home prices are also high. “The cost of buying a home has gone up again, and prices haven’t come down,” Kelman said. “So the Fed continues to try to tame inflation with rate increases, but at least one sector is indomitable, and that is real estate.”
It’s anxiety-provoking, he said. Housing is a critical need, and would-be buyers who held out last year are tired of waiting. Millennials who have delayed starting a family, putting off plans, can only wait so long, Kelman said. He has never seen anything like it, calling it the “worst case scenario” for the real estate market. “Real estate is in recession and the rest of the economy is booming,” he said.
“I was CEO during the Great Financial Crisis,” he continued. “The sales volume has decreased, but so have the prices.” One problem solved another, Kelman said. Usually, when sales go down, prices go down, and then sales go up later — that’s the cycle, he said. Homes become affordable again and sales increase thanks to this. This situation is very different. Interest rates rose and sales volume plummeted, as he put it, but home prices did not follow suit. “Part of this is just the artifact of 30-year mortgages,” he said. Everything the Federal Reserve is doing has no real effect on homeowners, other than keeping them where they are. “It actually has the perverse effect of keeping home prices high,” Kelman explained.
Little does he know that mortgage rates will rise significantly by the end of this year; they could even go down, depending on inflation. He thinks sales will improve and have already been better than he expected. That’s because people need a home: it’s not a “fad” and there is a “deep-rooted human need to own a home to raise a family in,” he said. However, there is more that goes beyond the latest period of cost unaffordability and has more to do with home construction.
“For a long time, housing got very expensive, but money got cheaper,” Kelman said, and one product of the pandemic meant people could commute wherever they wanted: remote work. Californians have become Texans and Floridians, but all the buffers are gone, he said. The people who were going to move have already done so and money is no longer cheap. The only way to solve the problem is to build houses.
“The basis of the American dream was that there was more land here than in Europe,” he said. “And for a long time the government has been very aggressive, working with developers to create more housing.” But things eventually changed, with what Kelman called well-intentioned laws to protect the environment and give people more control over the type of housing built in their neighborhoods. This failed and it became much more difficult to build anything. “The left, as well as the right, have really struggled to solve the affordability crisis,” he said.
California is probably ground zero, Kelman said. For years, the housing crisis has worsened due to failed policies and unfettered local control. Initiatives to change local land use regulations have been developed, but they have failed time and time again. But in the end they didn’t. Kelman says it’s an encouraging sign and that housing is finally being talked about at all levels of government because something needs to be done. “Biden’s fundamental problem with millennials is how optimistic can you be about the economy from your parents’ basement?” Kelman said.
“If we were completely naked in public, we would have nothing to fear”
Aside from deteriorating affordability, there’s one other thing that’s rocked the housing world: the National Association of Realtors’ $418 million settlement. “NAR had to settle down — it was existential,” Kelman said. “Every ruling in the Missouri case had gone against them, and that was precedent that other courts would follow, so they had to.”
Redfin’s fee model has always been different and lower than the industry standard, so it’s unclear what will change for the company. The “opacity of pricing in real estate,” he suggested, may actually have prevented people from selling and buying with Redfin.
“Our big frustration as a company has normally been: When you offer better service for less money, the world comes to your door,” he said. “And Redfin grew from zero to a billion dollars on this premise. Yet, I think we could have grown more if consumers were driven by value… The more clearly shoppers understand the value of what we offer, the more sales we will achieve.”
Even so, Kelman said he doesn’t know whether the housing market will be affected as a result of the deal. If anything, the fee change appears to benefit sellers; it won’t make housing more affordable. He’s not supporting the deal in any way, because for one thing it still has to be approved and there’s no way to know for sure how it will all turn out. Of course, Redfin is facing lawsuits from its own boards. He doesn’t comment on whether he’s worried; instead he said that the company is in a good position and that its only existence in 18 years has been to offer people better conditions. “If the world knew more about Redfin, if we were completely naked in public, we would have nothing to fear,” he said.
Although Kelman holds a 2% stake in Redfin, he is the lowest paid person on its executive team. He takes home $300,000 a year on a cash salary and asks to receive a bonus only if he gets a positive net income, basically if the company makes money after paying expenses, which he hasn’t done in recent years. three years. You don’t get to see him often.
“My board asks me this question every year,” he said. “I really don’t know what to say. I feel like I have earned a king’s ransom with this company. I’m the luckiest person in the world to be able to run this, and what’s wrong with America is that so many capitalists are actually engaged in a form of plunder. And I don’t know how to set an example unless I lead by example.”