A luxury-furniture CEO warns that ‘the housing market is collapsing at a level I haven’t seen since 2008’
- RH CEO Gary Friedman told investors on an earnings call this week that the housing market is collapsing.
- He previously told investors that “anyone who doesn’t think we’re in a recession is crazy'”
- Other real estate experts think the market data isn’t a perfect indicator of future performance.
Add the CEO of a high-end furniture company to the growing chorus of voices who foresee a dramatic downturn for the US housing market in the coming months.
Gary Friedman, who leads RH, formerly known as Restoration Hardware, told investors during the company’s third quarter earnings call on Thursday that “the housing market is in freefall” and thinks the US housing market is on the brink of collapse similar to what happened in 2008.
He points to low homebuyer demand and the Federal Reserve’s aggressive interest rate hikes to tame inflation for the market decline.
“The housing market has collapsed, and it’s gone down pretty viciously as interest rates went up,” Friedman said during the call. “I haven’t seen this kind of drop since 2008.”
Known for not mincing words, Friedman has developed a reputation for his blunt assessments during earnings calls, but his recent remarks stand out among a crowded field of business heads and experts who are less certain about the market’s future.
For instance, during RH’s previous earnings call in September, Friedman suggested that the housing market was entering a protracted decline and cavalierly declared that, “anybody who doesn’t think we’re in a recession is ‘crazy.'”
In this week’s call, Friedman highlighted Redfin data that shows homebuyer demand was about 37% lower in October 2022 compared to the same period a year prior. Meanwhile, Friedman estimated that the luxury housing market, which is RH’s primary market, could see a 35% to 40% decline in activity in Q4 because of high interest rates.
Housing market declines often have a ripple effect in the furniture industry, which is one reason why RH saw a significant decline in revenue in Q3 and may have been a contributing factor to Friedman’s stark assessment. The company earned $869 million in Q3 this year compared to the more than $1 billion it brought in during Q3 2021. Similarly, Friedman projected the company’s revenue could be 3.5% to 4.5% below expectations once the 2022 fiscal year has ended.
Despite Friedman’s gloomy outlook on real estate and the economy, Glenn Kelman, Redfin’s own chief executive, told the Wall Street Journal that the data isn’t always a perfect indicator of the market’s future performance.
“When prices are rising, people can’t believe housing will ever go down, and then once prices fall, they can’t believe it will ever go up,” Kelman said.
Other experts, such as Doug Duncan, the chief economist at Fannie Mae, said that the current market is closer in resemblance to the downturn of the 1980s than the housing bubble that led up to the crash in 2008.
At the time, the Federal Reserve raised its benchmark interest rates into the low double-digits to combat runaway inflation, which caused the housing market to grind to a near-complete halt between 1979 and 1983, Duncan added.
“As soon as the Fed got control of inflation and started working it down, you saw transactions start to pick up,” Duncan told the Wall Street Journal.