'Major price cuts'—It could be a bad summer for home sellers, Redfin CEO warns

American homeowners who can’t delay moving any longer will face an unfavorable market when they decide to list their homes this summer, warns Redfin CEO Glenn Kelman.

In a recent interview, Kelman said home prices will likely decline in several markets due to slumping demand. Listings in Florida and Texas have already seen “major price cuts,” he said.

The Redfin CEO referenced his firm’s latest research showing that more than 6% of home sellers slashed prices in May—the largest proportion in over a year.

Many homeowners are waiting for mortgage rates to drop before listing their homes due to the "golden handcuffs" phenomenon. But many of them can’t wait any longer due to changing personal circumstances.

“A lot of our customers are folks who got a divorce last year, and the husband and the wife are driving each other crazy, or they own a townhouse, and they’ve had a third child, and they’re just bursting at the seams,” Kelman said, describe the typical profile of forced sellers.

“At some point, even though people don’t want to sell, they have to sell,” he explained.

There’s a good reason why so many Americans don’t want to sell—and it has everything to do with mortgage rates.

Breaking out of the golden handcuffs

Surging home values since the pandemic have left Americans with a record amount of equity built up in their properties. According to CoreLogic data, homeowners with mortgages accrued $1.2 trillion in equity between 2022 and 2023.

But to avoid trading in record-low mortgage rates, homeowners have remained on the sidelines instead of upgrading their homes or downsizing and pocketing the cash.

According to Creditnews Research, 64.5% of U.S. mortgages are locked into rates below 4%. With the current rate of 7%, selling now means refinance at a much higher mortgage rate.

This so-called “golden handcuff effect” means homeowners are wealthier but have fewer incentives to sell and move on. According to Redfin’s research, a growing percentage of them are now being forced to "break free."

For everyone else, there’s no evidence that mortgage rates are coming down anytime soon.

The Fed only expects to cut interest rates once this year due to lingering inflation concerns, and industry experts aren’t convinced that ultra-low mortgages are coming back.

“The days of ultra-low interest rates are behind us, and while we won’t say they’re gone forever, it’s highly likely we’re settling into the “new normal” environment where rates could stay in the mid-to-high 6s for quite some time,” said Jeffrey McConnell, a branch manager and loan officer at Castle & Cooke Mortgage.

Meanwhile, Fannie Mae, the Mortgage Bankers Association, the National Association of Realtors, Realtor.com, and Wells Fargo forecast rates averaging between 6.5% and 7% this year before dipping in 2025.