Mortgage rates in the US have come down from their highs of 8% in October 2023 , but are beginning to slowly rise once again. With housing inventory remaining much lower than demand, the advent of buying a home can seem impossible for many Americans.

Compass Founder and CEO Robert Reffkin (COMP) joins Market Domination to break down the current situation with the housing market and what home buyers, sellers, and investors need to keep in mind when entering the housing market at this time.

In terms of one of the bigger problems for the housing market, Reffkin mentions the weight of rates: "I think the Fed [Federal Reserve] lowering rates would do more for the real estate market than anything else. That's the biggest bottleneck. Because seven percent is still pretty high from recent history. It's low from a 30-year perspective, a lot of agents at Compass who say I remember when mortgage rates were 20%. We're hopeful that rates will come down to the low sixes at some point this year. I think the magic number to completely open up the market would be high-fives, maybe even six [percent[."

Reffkin also weighs in on the National Association of Realtors's (NAR) landmark settlement on commission rates, of which Compass paid out $57.5 million in settlements in the antitrust suit.

For more expert insight and the latest market action, click here to watch this full episode of Market Domination.

Editor's note: This article was written by Nicholas Jacobino

Video Transcript

JOSH LIPTON: Mortgage rates hover in the 6% to 7% range with no signs of a meaningful decline, at least, in the near term here. Affordability a sore spot in the housing market as prospective homebuyers look to the spring buying season. Here with the very latest pulse on real estate, we have Compass founder and CEO Robert Reffkin. Robert, good to see you.

ROBERT REFKIN: Glad to be here. Thanks for inviting us.

JOSH LIPTON: So spring selling season what are you expecting? Should we see a big jump in inventory?

ROBERT REFKIN: So at Compass, we have a very unique perspective. We're the number one brokerage firm in the country. We have over 30,000 agents. We're in every major market in the country. What we see is 26% more inventory today than the same time last year, which is great because more inventory equals more sales.

Last year was defined by sellers sitting on the sidelines, and it translated to the lowest level of transactions since 1995. So we feel like we're in a much better place now. And last week, we actually saw 13% more homes under contract in the same time last year.

JULIE HYMAN: And that's really been one of the bottlenecks, at least, right, has been the amount of inventory. I'm curious. So it's up 26% from last year, how does it compare to the prior year or prior years, are we still a pretty far cry?

ROBERT REFKIN: I'm glad you asked that question. For context, we're still 40% below the prepandemic level of inventory. This country just doesn't have enough inventory.

JOSH LIPTON: And Robert, with the 30-year fix where it is, how much of a headwind is that for the market?

ROBERT REFKIN: It's a headwind for both buyers and sellers but really more for sellers because a year ago, we had 72% of homeowners locked in at 4% mortgage rates or below. So the difference between a 3% and a 7% is just too far off. Fortunately, now it's about 58%. So it's going down about 1% a month. We call it that lock-in effect. Locked in from selling their homes because of their low mortgage rate.

JOSH LIPTON: Can I actually ask real quick, how does that impact sellers, though, Robert? I mean, does that impact pricing, for example?

ROBERT REFKIN: It impacts their willingness to sell. The sentence you'll hear from sellers is I have a 2.5% mortgage rate. Nothing would get me to sell my home. But there's a dynamic at play. We call it the 5 D's-- diapers, diplomas, diamonds, divorce, death. And that keeps the market moving, those life events. And so those life events are what bringing the 72% down almost 1% a month to what we now have around 58%.

JULIE HYMAN: And yet maybe that mortgage rate is vying with those life events. I mean, we saw a recent study from John Burns Institute that looked-- they surveyed people regularly on what are the things that is holding current homeowners back from purchasing a home. And they said for the first time ever waiting for mortgage rates to decline was actually higher than those life events. So what is going to change that? Is it that those rates are going to start to decline?

ROBERT REFKIN: Well, I think the Fed lowering rates would do more for the real estate market than anything else. That's the biggest bottleneck. Because 7% is still pretty high from recent history. It's low from a 30-year perspective. There are a lot of agents at companies who say, I remember when mortgage rates were 20%, but we are hopeful that rates will come down to the low 6s at some point this year.

I think the magic number to completely open up the market would be high 5s and maybe even 6 because the last fall we saw 8% mortgage rates. And so in a way that was hard. Last fall, it really slowed down the market. But from this perspective, it's great marketing 8% that 6% mortgage rate is a great deal.

JOSH LIPTON: And Robert, who's buying a home right now? Do you have like a line of sight into that? Because it's hard to imagine. Tell me if I'm wrong. It's a lot of people in their 20s just given the affordability issues we're kind of talking about here. Has sort of the American dream kind of been pushed out here a bit?

ROBERT REFKIN: We absolutely have affordability issues in this country. However, the very nature of having inflation means that there's a lot of money out there. And what we're seeing is people are buying across ages, across geographies, but the hottest markets are the markets where the employees are paid in tech stocks.

So San Francisco, Seattle where you're paid in Amazon stock, Microsoft, Facebook, et cetera where it's at an all-time high. You don't need a low mortgage rate if your stock portfolio is at all-time high. New York's benefiting from that a little bit with Wall Street, as well as some of the other tech hubs.

JULIE HYMAN: I have to ask you about the settlement, you know, that is going to change, we think, how buyers and sellers are paying their buyers and sellers brokers because that's something that could affect compass. I think everybody is trying to figure out how. And so as someone who runs a company that this is going to affect but it's an uncertain outcome, how do you plan for this? What do you think is going to happen?

ROBERT REFKIN: Yeah, look, I think the headlines have been much more dramatic than the details of the actual requirements. There are headlines that say NAR eliminates the 6% commission. NAR even governance commissions. And so there are two changes, only two. I think they're fair. One is that the MLS website, just a website, will no longer be able to hold the commission that is paid to the buyer agent.

And the second is that buyers will have to sign a buyer representation agreement with their buyer agent. So, I think, it's not as dramatic as the headlines have described. I don't think things will change as much.

JOSH LIPTON: Do you think, Rob, this could impact the pool of realtors out there? Because I've heard some people make that argument. Maybe you'll see fewer realtors because of this.

ROBERT REFKIN: I think if you are thinking about becoming an agent and you read headlines, and you're thinking about becoming a agent in the next three to six months, you may decide not to. So maybe you get less people coming in. I think if you're an agent and you've been doing this for less than a year, and you see the headlines, they scare you, you may leave. But if you are a professional agent, I don't think there will be any professional agents who leave the business because of this.

JULIE HYMAN: Well, and is there also an opportunity-- if there is going to be more negotiation between a buyer's agent and buyers, is there also an opportunity if you are an amazing agent to outperform even more than in the past or? I'm still trying to wrap my head around all this in full disclosure.

ROBERT REFKIN: Yeah, no, look, it's a good question. Commissions have always been negotiable. And so from that perspective, they'll be able to negotiate in the same way they have in the past. But I think to your point, if you're an agent and you think that your services are worth more than others, I think this gives you an opportunity to say, I think I'm worth more, and my services costs 3% plus.

And I do see that in the market. Agents independently come up with their commissions. There is no standard commission out there across the MLS. So you can look in the MLS, there's all kinds of permutations. And so, I think, you are right that you may see some truly great agents, just like truly great lawyers, truly great doctors command a higher commission than others.

JULIE HYMAN: Interesting. All right, well, to be continued I'm sure as this evolves. Thanks so much, Robert. Really appreciate your time.

ROBERT REFKIN: Awesome.