In late August, Spencer Rascoff, the cofounder and former CEO of online real estate marketplace Zillow, said on CNBC that mortgage rates might have peaked and could begin to fall in spring 2024. But after the latest Federal Reserve meeting in September, his outlook has changed, and he now sees mortgage rates staying at their 20-year high for a lot longer.
“Mortgage rates are going to stay high for the foreseeable future. It will be in the 7 [percent]’s for at least another year, unfortunately,” Rascoff told Observer in an interview last week.
That prediction is based on the assumption that the Fed will raise interest rates by 25 basis points at least one more time before the end of the year. (The Fed has raised rates 11 times since March 2022.) “So, rates will stay at current levels for at least six to 12 months. It will be at least a year before the Fed starts cutting rates. And then there will be a lag on mortgage rates,” Rascoff said.
High mortgage rates are not only pricing many prospective home buyers out of the market but also deterring existing homeowners from putting their houses up for sale. About 82 percent of homeowners have a mortgage rate below 5 percent, and 62 percent have a rate below 4 percent, according to Redfin data. “As a result, homeowners are reluctant to list their homes for sale because they would have to, in turn, buy new homes at a much higher mortgage rate,” Rascoff explained. “In fact, most people can’t afford to rebuy their existing homes at today’s rates.”
“On the demand side, we are at a 40-year low in terms of affordability,” he added. “So, the housing market is in a bit of a gridlock, where there is minimal supply and demand is also constrained.”
Zascoff’s new experiment in real estate
Rascoff left Zillow in 2019 after serving as its CEO for nearly a decade. Since then, he has launched another real estate company called Pacaso and still pays close attention to economic indicators driving the housing market.
Pacaso is an online marketplace for buying and selling fractions of vacation homes. On the site, single-family homes are sold in units of eight. Buyers can purchase one or multiple units and share the usage time with other co-owners—for example, a family who owns one-eighth of a home can live in it for up to six weeks a year. Pacaco acts as a broker as well as a property manager, taking care of decoration, storage, taxes and other maintenance needs. The idea is to make second-home ownership more affordable and hassle-free.
“Second homes are very expensive,” Rascoff said. “One of the reasons is they are under-utilized. They tend to sit empty most of the year. Co-ownership can increase the utilization rate of second homes and lower the cost of purchasing and operating second homes.”
The ultimate goal of Pacaso is to “help everyone everywhere someday to be able to afford a second home,” Rascoff said. But for now, the company is primarily brokering sales in the upscale market, where the whole value of homes transacted on the platform averages about $6 million. Its most popular markets include California’s Napa Valley, Malibu, South Carolina beaches and London in the U.K.
Rascoff, who co-owns a vacation home in Malibu, said most Pacaso customers take mortgages just like regular home buyers, and high mortgage rates, while affecting inventory to a degree, make fractional homeownership an attractive option to many. “Once people got over the sticker shock of high interest rates, Pacaso ended up being a relative bargain because right-sizing one’s ownership saves money,” Rascoff said.
Since leaving Zillow, Rascoff has started a number of startups through 75 & Sunny Ventures, his family office that invests in and incubates early-stage companies. In most of his portfolio companies, Rascoff also joins as a co-founder and board chairman. In addition to Pacaso, Rascoff has cofounded a streaming planning app called Queue, an A.I. personal assistant called heyLibby, and Recon Food, a food-focused photo-sharing app he co-created with his then 15-year-old daughter in 2020.
Correction: An earlier version of this article misspelled Rascoff’s last name in the sixth paragraph.