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Jeremy Owens: Hello and welcome to On Watch by MarketWatch. I’m Jeremy Owens. The housing market has gone into a deep freeze since the Federal Reserve began to raise interest rates two years ago. But there are signs that the market is thawing as spring approaches and a settlement of a long-running lawsuit could help. We’ll talk to Aarthi Swaminathan about how you should prepare for the spring home-buying season. Then we take a look at Reddit’s initial public offering. In its 20th year of existence, the popular website’s first batch of stock began trading today. And users were offered a chance to buy the shares. But the IPO, it will likely lead to changes to make Reddit profitable, and its users may not be too happy with that. We’ll discuss. Plus, we’ll take a quick look at the news stories we are watching right now and how they’ll affect your wallet. First, let’s talk about the spring home-buying season and whether it can become the spring home-selling season.
The housing market’s been stalled as homeowners like myself refuse to sell because we have such low mortgage rates that locks out young renters who are ready to buy their first homes, which includes MarketWatch’s housing reporter, Aarthi Swaminathan. We discussed this in a previous episode, dubbing at the housing trap, but it seems like that trap may be opening up a bit. As we approach spring, the typical start to home-buying season, homeowners seem more willing to jump into a seller’s market and there could be another push for homeowners looking to sell. The commissions homeowners pay real estate agents when they sell those could be slashed after a settlement from a long-running lawsuit late last week.
So we asked Aarthi to return and chat with us about how this coming spring could thaw the frozen housing market. Well, Aarthi, last week was the two-year anniversary of the Federal Reserve beginning to raise interest rates. As we head into spring this year with people getting more used to the higher mortgage rate environment, do we see any signs that this frozen housing market could thaw?
Aarthi Swaminathan: So, Jeremy, I am quite excited for the spring housing market because it seems like a great thawing is happening in real estate and early indications are pointing to it. We have to wait and see, but something is changing. Sellers are willing to sell. Buyers are comfortable with 7% mortgage rates, so inventory is rising, and demand is rising. So it seems like we’re going to be having a hot spring season. Is it fair to say hot spring?
Jeremy Owens: Well, yeah, at least warmer than we’ve experienced the last couple of years, we think. It really does depend on if people sell their homes though. Right now, prices are so high that sellers have to look at the market and say, “If I can get that much from my house, I need to get it out there on the market.” ‘Cause people are paying premiums.
Aarthi Swaminathan: Mm-hmm. And it is interesting because like you said, the market is not more affordable, it’s just that we’ve made peace with it. Everything is saying that listings are really rising fast. Zillow had an estimate out that existing home listings rose 20% in February compared with last year. That’s a big jump and the biggest gains were in the south in Texas and in Florida, and that’s because of substantial new construction coming online. And so if you’re a seller and you’re seeing more and more listings, even though rates are at 7% with rates poised to drop to 6%, maybe below 6% by the end of the year, you would want to act now before competition heats up. So that’s the sentiment I’m getting from people who are in the market, repeat buyers looking to buy homes.
Jeremy Owens: And the problem for people like me who would consider selling their home is that it’s a seller’s market. So you want to get your house out there, but then you have to turn around and maybe buy a new home and you’re still buying a home in a seller’s market. So even if you get a solid premium for your house, you’re going to be paying a solid premium, whatever you get to replace it.
Aarthi Swaminathan: At the same time though, Jeremy, there are a lot of people who have so much equity in their house because home prices have appreciated so much over the last few years. And so I recently talked to a buyer who was able to cash out on a previous house and buy a bigger house and pay all cash. And that was such an interesting anecdote because again, people have so much equity in their homes that they’re able to tap on that maybe put more money down and maybe buy down their mortgage rates. So there are certain pockets of people that I’m seeing who are sellers very motivated to sell at this point. And that goes to my point of maybe the lock-in effect is easing somewhat.
Jeremy Owens: What else did you hear from people in the market, especially about buying? It seems like the competition is fierce. It seems like houses are going off the market super-fast when they do show up.
Aarthi Swaminathan: Yeah, so I found a couple of trends when I was doing this story and I continue to talk to buyers on a regular basis because I’m very curious who they are, what they do for a living, how much they’re putting down all of that. Recently I did a story where I found a few trends which were buyers are accepting 7% mortgage rates, we are done with rates are too high. It’s a situation where, “Okay, this is what it is and we’re going to buy.”
I found that more and more people are buying in their 20s. People are more willing to find homes outside of their comfort zone. So if that means an hour-long commute, that’s totally fine. I’m hearing more bidding wars. Obviously if you’re a cash buyer, that gives you an upper hand. You don’t have to come in and fight with people in terms of the price you’re paying and the type of loan you’re offering, all of that, so that’s what I’ve found is driving the market. Do you want to hear what’s out? What people are no longer waiting for? People are no longer dreaming of a housing crash.
Jeremy Owens: Oh, I’ve heard it everywhere. And that has kept people on the sidelines just thinking, we’re going to experience another 2008 where people are going to be underwater and walk away.
Aarthi Swaminathan: A shout-out to my husband who still believes in that. And I tell him, “No, no, can we just buy a house now when we can afford it?” But no, he thinks a housing crush is coming. But no, the housing crush is not coming, at least as far as we can tell. The data is showing us that home foreclosures are still pretty low. They’re down 1% in February. They’re up 8% year over year. But all this data basically says something is shifting, but it’s not enough to be alarming yet.
Jeremy Owens: Yeah, ’cause prices haven’t shifted lower so you’re not underwater on a house and it’s like mortgage rates suddenly fell back down. It’s not like people with six, 7% mortgage rates are regretting locking in ’cause we’re still at six, 7% mortgage rates. So there’s really no setup here for that housing crash to happen.
Aarthi Swaminathan: And then you as a homeowner, you have 3%, 4%, maybe you have 2%. That’s a really nice mortgage payment. And as a homeowner you probably have substantial equity. To my earlier point, the average homeowner has about $300,000 in equity in their home. And out of that roughly 190 is tappable, which means you can withdraw it while still maintaining a 20% equity stake in your home.
Jeremy Owens: Late last week, there was big news that there was a settlement and a long-running lawsuit, and there’s thoughts that this settlement could actually help homeowners sell. Could you explain to me a little bit about what happened there and what the effects could be?
Aarthi Swaminathan: So the National Association of Realtors last week settle a bunch of lawsuits that were brought forward by home sellers. The settlement basically said that a seller doesn’t have to pay for both their own agent and the buyer’s agent. And so what changes? Home listings now no longer include an offer up front to compensate the buyer’s agent. So a seller will see their commissions maybe slashed in half. So if you’re selling a billion-dollar house, instead of paying $60,000 to the seller and the buyer’s agent, you’re maybe only paying $30,000 to get your home staged and listed on the multiple listing service. So that’s a big change. So what we don’t know is whether this will push more people to sell, and we also don’t know what impact it will have on people who are buying.
So if you’re selling and looking to avoid this commission, maybe you don’t only want to pay half of it, will you be waiting until July to sell? It’s not really clear if you’re a buyer starting July, will you have to pay more on top of your down payment, on top of closing costs and all of the other things? Will it become more expensive for you to buy a home? That’s also unclear. So we are still waiting to see where the dust settles, and the settlement is still not even approved. So interesting development, something major to watch for sure. But for now, we just don’t have enough information to make a conclusion.
Jeremy Owens: What other tips do you have to navigate this market if people are trying to get back out there?
Aarthi Swaminathan: Yeah. So one of the things that I’ve been talking to people about is finding a way to bring down your mortgage rate. So if you are an active-duty service member, if you’re a veteran, you have access to VA loans which have a lower mortgage rate. You can also negotiate with your lender. A lot of research suggests that you should shop around, and I overstate that enough. People don’t shop around. They just go to one lender who is a preferred lender that your real estate agent recommends, and then you end up taking a mortgage with that person. But that’s not what you should do.
You should shop around because the more you shop around, the more you realize how many fees and things are tacked onto your mortgage that they might be charging you a higher rate. And so that’s a big tip. And then the biggest tip is to try to find out what areas really work for you. We get very into a certain type of house, but being really flexible, especially now as competition is really heating up is I think going to be key.
Jeremy Owens: And people should know that they’re going into a bidding war just about any house at this point, and that trying to low bid is where you’re not going to have a shot really. This is something where you just have to realize in most areas right now, if you’re going in putting a bid on a house, you’re facing competition and you’re unlikely to get it at the price asking this is just a hot market and sellers have the power.
Aarthi Swaminathan: Oh, absolutely. If a house is asking for 500,000, talk to your real estate agent, maybe offer a little bit more because you need to secure that house. And so you need to come armed with the financing to do so. Low-balling is not going to get people very far, but it depends if the market is exceptionally cool, if nobody’s buying in their market, I have yet to see such a market. And, Jeremy, two other things I wanted to mention. One is that a lot of people are saying it feels almost like the ’80s when people are buying it, far higher interest rates, and this better than me.
Jeremy Owens: Since I was around back then. Yeah.
Aarthi Swaminathan: For the fact that you existed in the ’80s. But people just want to get a foot in the door. They just want to start building equity instead of waiting around. They have the savings, and they want to build generational wealth, and so that’s why they’re buying now. And so it’s a tough market, but they’re thinking, “What is the opportunity cost? What happens if I wait? It will just become more expensive.” And the other thing I wanted to mention was homeowners or landlords are thinking of selling. So one of them is selling a $1 million property. These people are looking to sell because it’s a hassle being a landlord. And so it almost feels like we’re on the edge of something major that’s going to happen. But again, we have to wait for the data to confirm it.
Jeremy Owens: And we’ll definitely come back to you in a few months and see how it’s going. Thanks so much for joining us, Aarthi.
Aarthi Swaminathan: Thank you. This was so fun.
Jeremy Owens: We are going to take a quick break. Coming up, Reddit’s IPO, stay with us. Welcome back to On Watch by MarketWatch. Before the break, we talked with Aarthi Swaminathan about the housing market. Now we move to the IPO market and a big name finally taking part. Reddit has been one of the internet’s favorite places for a couple of decades, but it hasn’t turned that popularity into big dollars yet. That’s a big reason the company is held off on an IPO until it could boost revenue. But as Reddit approaches $1 billion in annual revenue for the first time, executives are taking the plunge and looking to turn its users into investors.
Reddit priced it shares at $34 apiece last night, raising more than $700 million at a valuation of more than $6 billion. The stock should begin trading today. Ahead of that, we welcomed in MarketWatch reporter James Rogers, to discuss some peculiar aspects of Reddit’s offering and how it will make enough money to justify that huge valuation. So, James, one of the big things that Reddit is doing for its IPO is offering shares to its users. So let’s talk about it a little bit. Obviously, that seems to me to be a naked attempt to turn its stock into the type of meme stock that its website helped make famous.
James Rogers: Yeah, there’s a few ways of looking at this. I had a lot of conversations with people last week about this IPO and certain things keep cropping up. One of them is the idea that on the one hand, they’re opened the shares up to the user base. So it’s this idea of maybe democratizing the stock, rewarding the people who’ve turned Reddit into what it is, which is fair. But on the other hand, we were into this really, really unusual situation where this website, which played such a pivotal role in the meme stock phenomenon in 2021 through the WallStreetBets subreddit, could then in and of itself become a meme because of the uniqueness of what it is and the vehicle that it is. And then added on top of that your offering shares to the user base. It could really go out of control.
Jeremy Owens: And what do you see on the boards? Are people talking about it a lot? Does this seem like it’s picking up momentum?
James Rogers: One word that keeps cropping up is volatility, even in Reddit own S1 file, and they talked about the possibility that through the Wall WallStreetBets subreddit, this could become a meme stock. They basically acknowledged that there was a risk of them becoming a meme stock. So here we have all this meme stock chatter before a company’s even become public. It’s absolutely incredible. And yeah, I could see it becoming very, very volatile because none of us know really how this user base is going to react.
Reddit’s a very unique social media platform. You compare this to a Facebook user or users of other social media platforms. These are people who are very, very committed to what Reddit is in terms of a community entity. So then suddenly to have it prey to the public markets and dependent on all these other criteria, you could go on forever. It’s not profitable yet.
Jeremy Owens: That’s really the thing here is it seems that they would want to be a meme stock because meme stocks don’t trade on fundamentals, and the fundamentals of Reddit’s business are not the best from what I can see, James. We’re talking about a website that is in its 20th year and has never put up a billion dollars in annual revenue and has never put up a profit.
James Rogers: Yeah. Look, you’re absolutely right. The fundamentals aren’t there, but as a public company, they’re going to be under pressure to make efforts to deliver those fundamentals. Sustainable revenue growth, obviously profitability is a huge one. And what levers are they going to pull to get to that? Are those levers going to really annoy the user base, the same user base who have also got to a stake in the company as shareholders now? So there’s just so many ways this could go. I’m fascinated by it, I’ll be honest with you, because it feels very meta for want of a better word.
And I’m using that in the original sense of meta, not as in terms of the Facebook sense of meta. It feels like life imitating art almost, or life imitating social media. It’s really weird. Look, I don’t want to see this fail. I don’t want to see any company fail. There’s a lot of hurdles that this company’s going to have to cross before it can prove and deliver on its fundamentals consistently. There’s a lot of water to go under the bridge here, and I don’t really know how it’s going to play out.
Jeremy Owens: Yeah. Well, let’s talk about the levers and how Reddit’s really selling itself and its potential for growth. The biggest business that they have is advertising, but they make a point of saying that while they’ve had advertising on Reddit since 2006, they really didn’t start taking it seriously until 2018. So they say that they’re still pretty early on in monetizing through advertising.
And then the other two businesses that they really play up in this, one is that data and AI, they have agreed to sell the data from the website to an unnamed AI company that is feeding it into its large language models or LLMs, we can assume that’s OpenAI. The OpenAI CEO has been a board member of Reddit in the past, owns a big chunk of Reddit stock, but it does not say that specifically. And the other is trying to facilitate commerce on Reddit and take a cut. And all of these are businesses that others have gotten into that others do. But yes, there’s a lot of questions about the potential and how much money Reddit can make from those three business lines.
James Rogers: I wonder whether there’s potential here around certain sectors. So is there potential for them to somehow monetize what they have around say, the entertainment industry? And in the same vein, is there potential for them to do things around sport? Look, I know you, Jeremy, big baseball fan. I’m a big soccer fan. I get a lot of the chatter around my team, Everton, from what I see on social media, but it’s not Reddit. It tends to be Twitter predominantly for good or bad.
Jeremy Owens: And this sounds a lot like the conversations we’ve had about Twitter in the past. How do they monetize being the place for conversation, being the place that people come to see the conversation? And it’s hard.
James Rogers: Look, Reddit pioneered the whole concept of the AMA. If there is a way to monetize that around personalities in… I don’t know, business, sports, entertainment, politics, even if there is a way to really turn that into something, and I don’t think they can do that on their own, but if there’s a way to do that with partnerships, if there’s a way to really push forward with that, then there could be an opportunity to move the needle somewhat. But when I think of Reddit, you look at what the interface is on Reddit and it hasn’t evolved the way other social media interfaces have, but has that really held it back? I don’t know, maybe the users like that.
Jeremy Owens: We’ve had a big freeze in IPOs since the pandemic boom back in 2021. We haven’t really gotten back to a hot IPO market, and I don’t know if Reddit’s really the one to do that, to jumpstart this IPO market. Usually, it needs to be a younger tech company that does that. Reddit’s 20 years old, and we saw this last year, Instacart went public, and it didn’t really jumpstart the IPO market. It was again similar to Reddit, an older tech company that had missed the wave of IPOs. I don’t know if Reddit is going to have that effect no matter what happens with the initial trading.
James Rogers: Yeah, yeah. So there are things that we could hang our hat on here and say, “Okay, this is all moving in the right direction.” But if it’s the case with so many IPOs, but there’s so many unknowns. This isn’t the worst time to go public in, but it’s not the best either. We’ve got high interest rates last year. A lot of IPOs were pushed off for a while, put on the back burner. And so a lot of people will be watching this closely. But again, it’s not a perfect time to IPO and this isn’t the perfect IPO either. So yeah, I’ll be really, really interested to see how this all pans out.
Jeremy Owens: Well, James, we’ll see how the Reddit IPO goes and where the IPO market heads from here. Thanks so much for joining us and we’ll have you back again.
James Rogers: Thanks for having me.
Jeremy Owens: Before we go, it’s time for what we are watching, a look at the news you need to know for the rest of the week and beyond. The Federal Reserve announced yesterday that it still expects to cut interest rates three times this year. Fed Chairman Jerome Powell said that elevated inflation rates at the beginning of the year haven’t really changed the overall story. That produced a sigh of relief on Wall Street, sending all three major stock indexes to a record high on the same day for the first time since 2021.
Another IPO that could have a much bigger effect on the future of the market for public offerings also began trading this week. Astera Labs, a startup that makes connective components to foster artificial intelligence raised more than $700 million in its IPO this week, shares soared more than 70% in their first day of trading. The success of a younger company focused on AI is the type of IPO that could prompt more young startups to take the public plunge. So we’ll be watching where that goes.
In other AI news, a report this week suggested that Apple could leverage Google’s AI technology as Apple looks to catch up with the rest of the big tech on the generative AI wave. NVIDIA also stayed in the spotlight announcing its next generation of data center chips at a conference in Silicon Valley. We’ll talk more about where all this AI chatter is headed next week. A quick correction from last week’s episode. Our guest, Hannah Erin Lang misstated the last time unemployment numbers were lower than 4% for this long in the United States. It was actually eight decades ago. The episode has been updated.
And that’s it for this episode. Thanks to Aarthi and James. To keep following the latest on the housing market and the IPO market head to MarketWatch.com. You can subscribe to the show wherever you get your podcasts, and please do. If you like what you heard, please leave us a rating or review, it really helps others discover the show. And let us know what you want to hear from us. You can reach us at onwatch@marketwatch.com. And if you’re a listener on Spotify, be sure to answer this week’s poll. The show is hosted by me, Jeremy Owens, and produced by Jackson Cantrell and Katie Ferguson. Isaac Gaines mixed this episode, Melissa Haggerty is the executive producer. We’ll be back next week with a new episode, and until then we’ll be watching.
