The former Zillow CEO said the rising cost of mortgages has cooled demand for homes, adding that he hopes in 2023 the Fed will be able to stop raising interest rates.
Spencer Rascoff, the former CEO of Zillow and co-founder of home-sharing startup Pacaco, said this week that rising mortgage rates have sent demand for homes tumbling, which in turn is keeping prices flat or even pushing them down in some markets.
“This supply and demand imbalance is rapidly coming into order because demand in housing has fallen off a cliff as mortgage rates have gone up,” Rascoff argued.
The long-time real estate industry fixture made the comments while appearing on CNBC Monday to discuss the state of the economy and the housing industry. During the appearance, Rascoff said the housing industry is suffering from a number of problems. And chief among them is the fact that after the 2008 financial crisis, builders stopped putting up enough homes.
“So housing affordability is terrible as mortgage rates have gone up,” Rascoff said, “but we need more builders to build more.”
Record low mortgage rates over the last two years have stoked the fires of consumer demand, exacerbating affordability issues for homebuyers. But as rates rose over the course of this year, that demand has rapidly dried up. Rascoff consequently described the last few months as a period in which supply and demand have been coming “into balance.”
“That’s why you’re seeing all of a sudden homes sit for a while on the market and you’re starting to see home values start to flatten and in some markets actually decrease,” he continued
Whether this is a good or bad thing depends on where you stand. Recent years have been a boon for sellers as seemingly unlimited demand made bidding wars ubiquitous and sent prices soaring by double digit percentages in some markets. But those conditions also made life extremely difficult for buyers. Demand “falling off a cliff,” as Rascoff characterized it, should consequently tip the scales at least somewhat in the direction of buyers.
Mortgage rates have risen thanks to the Fed’s attempts to stop inflation via interest rate hikes. However, Rascoff also said during his CNBC appearance that he is optimistic about the housing market’s future.
“You are seeing housing coming down, you’re seeing the price of oil come down,” he explained, “and generally there’s optimism that in 2023 the Fed rate increases can finally stop.”
Where all of this ultimately leaves the housing industry remains to be seen. However, in recent days industry leaders such as Ben Kinney have suggested mortgage rates could ultimately rise to or above 7 percent — considerably higher than they are right now.
Despite the uncertainty, though Rascoff said that consumers are still spending in general, drawing on their savings and credit.
On the other hand, Rascoff noted that major technology companies such as Snap, parent company of social app Snapchat, have seen plummeting revenue as digital advertisers pull back their spending.
“What’s happening in ad tech on the demand side is this macro meltdown of the last few months which shut the [initial public offering] window and shut the late stage growth window, that’s impacting advertising spending,” Rascoff said, adding that the pull back has impacted other kinds of spending as well beyond just advertising.
Rascoff went on to say that many of the companies in his own investment portfolio have drastically cut their spending.
The comments had to do with the technology sector generally, and Rascoff didn’t go into detail on which companies he has in his personal portfolio. However, recent years have seen a dramatic influx of venture capital to the real estate industry. That money fueled the rise of companies such as Compass and Opendoor, which deal in one way or another with the physical buying and selling of houses, as well as an array of firms solely dedicated to providing technology solutions.
It’s reasonable to assume, then, that if Rascoff is seeing a pull back in spending generally, that phenomenon is likely impacting the real estate technology space as well. Either way, though, the current technology landscape is very different today compared to even just the very recent past.
“As it relates to ad tech,” Rascoff said when asked about the economy, “demand has been destroyed.”