‘We can’t go much lower’: Compass CEO says homebuyers are now accepting mortgage rates of 7%

Compass CEO Robert Reffkin said in a CNBC interview last week that homebuyers are adjusting to higher mortgage rates as there are signs the housing market may have bottomed out. His comments come on the heels of recent home sales data from October that showed an annual increase in more than three years, up 2.9% year-over-year.

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Despite the increase, transaction volume remains well below normal levels. “The average transaction volume over the last two years has been just over four million, when it should be over five million,” Reffkin said, pointing to about three million transactions with backlog. “I think there are a lot of reasons why we go higher,” he said, adding that “you can only hold back life events for so long.”

While current mortgage rates of 7% are above a comfortable buying level, Reffkin sees improvement from last year’s high of 8.2%. He told CNBC that interest rates below 6% would signal a return to normal market conditions, although even a short period at that level could trigger significant activity. “Give me 5.999% not just for a day but for a few months and we are almost halfway through the cycle,” he said.

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Looking ahead, Reffkin cited historical patterns that suggest possible market improvement. “In the year following 10 of the last 11 presidential elections, transaction volumes and prices increased,” he explained, attributing this to buyers postponing purchases during election years.

He said housing inventory nationally was up 20% year-on-year, although a further 30% growth was still needed to reach pre-pandemic levels. The luxury markets are showing particular strength. Reffkin points out that capital gains allow wealthy buyers to benefit from higher interest rates while being spared from mortgage costs.

First-time buyers face ongoing challenges: the average buyer age is now 56, compared to previous averages in the 20s. “First-time buyers are affected because of affordability. And affordability is an issue because there is not enough inventory,” Reffkin explained.

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In response, Compass has launched several initiatives to increase inventory, including programs that address concerns about launch statistics and price reduction history.

His outlook is consistent with that of other industry leaders, including executives at Home Depot and Lowe’s, who believe housing sales are likely down. “I don’t think we can go much deeper than that,” Reffkin said. “There is no sign in recent history that the number will fall significantly below four million and we have been at this level for two years now.”

Reffkin was optimistic about recent changes in the industry surrounding brokerage fees. “Of all the reports that are out there, no one is saying there is a significant change in commissions,” he told CNBC, suggesting that the impact on the market has been minimal so far.

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