Concern vs Hysteria

If you’re an avid reader of this newsletter, you know we do a lot to combat all the doom-and-gloom naysayers out there.

Right now, the preliminary approval of the NAR settlement has reignited all the chatter about the so-called “death of buyer agency.” 

We say not so fast!

Scroll down to today’s Foundation Plans and we’ll give you several key reasons why we believe the naysayers are wrong, and what we expect to happen from here. 

We know there’s a lot of uncertainty in our industry right now, but there’s a big difference between concern and hysteria. While there will certainly be changes, some might not be as big as feared.

– James and David

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New home sales exceed expectations

Sales of new single-family homes reached 693,000 nationwide in March, up 8.8% from February and up 8.3% from the number of sales (640,000) expected by the Census Bureau. 

The median price of new houses was down 1.9% year-over-year and now sits at $430,700. Meanwhile. the average sales price is currently $524,800.

The estimate of new houses for sale at the end of March totaled 477,000, a supply of 8.3 months at the current sales rate. This is down from 8.8 months in February, but up slightly from last March.

Our take

It’s good to see newly-built home sales climbing higher than expected, especially when compared with the March decline in existing home sales which we discussed in our last edition. We can chalk this trend up to the concessions that many home builders are offering. They are making newly-built homes a more attractive and affordable option for many buyers. 

Supply of homes soars in Florida and Texas

Compared to last year, new and active listings rose nationwide in March. According to Redfin, new listings rose by 6% YOY while active listings rose by 4% YOY, the biggest annual gain in 12 months. Here are some specific highlights from the March update:

• Florida and Texas have been building more homes than anywhere else in the country

• Of the 10 metro areas that posted the largest year-over-year increases in supply, six are in Florida and two are in Texas.

• Of the 10 metro areas where sellers were most likely to cut their list prices, five are in Florida and two are in Texas.

• 70% of Florida homeowners have seen a rise in insurance costs or changes in coverage

Our take

There’s so much we can learn from what’s happening in Texas and Florida. If we want to affect housing affordability, we have to increase supply. Home prices are stagnating in Florida and Texas because the supply of homes is soaring. That’s just basic supply and demand at work. But that’s not all. The insurance crisis in Florida is increasingly affecting home purchases and delaying some deals. It’s also causing many sellers to list their homes. If the skyrocketing cost of insurance isn’t addressed soon, very few markets will remain unaffected.

Markets where investors are putting their money

In the past three years, Memphis has seen the largest spike in the share of single-family homes owned by investors, while San Francisco has seen the largest decline. That’s according to the latest report on real estate investor activity by Parcl Labs.  

Here are the top 5 markets where the share of investor-owned single-family homes has increased or decreased the most:

Our take

We know what’s to blame here. The spike in mortgage rates created even more affordability issues, making fewer properties viable for cash-flow investments. This has caused many investors to shift their focus to housing markets with greater affordability, such as Memphis, where a bigger number of cash-flowing homes are available on the market. Investors have also started focusing on markets like Charlotte where the population is expected to keep growing, causing long-term jumps in rental growth.

Schematics

The news that just missed the cut

• NAR settlement gains preliminary approval

• How ADUs are changing the housing landscape 

• Use these techniques to make a room look bigger

• How to host a successful seller seminar to get new listings

• What “urban camping” is and why it’s increasing

Foundation Plans

Advice from James and David to win the day

As we mentioned in our Schematics section, the NAR settlement received preliminary approval from Judge Stephen R. Bough. This has renewed chatter about the death of buyer agency. Today, we’d like to explain why we don’t see that happening:

Commercial real estate proves buyer agency can exist – Although most residential sellers and buyers were unaware, even before Sitzer/Burnett and the NAR settlement, commissions have always been negotiable in both residential and commercial real estate. However, unlike residential real estate, most commercial listings never listed how much the procuring broker would be compensated. It was always negotiated. That didn’t lead to the death of buyer agency in commercial real estate, so it shouldn’t in residential real estate either.

The Northwest MLS proves buyer agency can thrive in a post-settlement environment –  Even before the Sitzer/Burnett case, the Northwest MLS in the Seattle area dropped the norm of broker commission sharing as a default. Instead, listings state that, when offered, compensation to the buyer broker will come from the seller directly. These adjustments have had minimal impact on the market. Essentially, it's business as usual, as the cooperative compensation model continues to be effective.

We’re going to go through a period of experimentation in various markets – Rather than bringing about an end to buyer agency, we anticipate a period of pay structure experimentation in various markets. Different places are going to try different things before things settle down. We expect there to emerge new fee structures for buyer agents, from fixed-fee commissions and flat-fee commissions to seller concessions. Buyer agents will need to quickly adapt to the new reality that the buyer agent commission is no longer an entitlement. Nonetheless, buyer broker commissions are going to continue to be largely paid as they have been, by the seller as part of the transaction. Fannie and Freddie have already said that their policies on interested party contributions allow property sellers to make contributions to the borrower’s closing costs subject to maximum limits ranging between 2% and 9% of the property value.  

The demand for top-level buyer brokers is going to only increase – Most people still want guidance when making the biggest financial decision of their lives. 89% of buyers hire an agent to help them. Although buyer agents will have to formalize their approach when working with buyers (similar to how listing agents work with sellers, a formal presentation, presenting their USPs, etc), that’s not going to bring about the end of buyer agency. Buyer agency is changing, not ending, in residential real estate. 

Let us know what you think of our take. Even if you sharply disagree, we’d love to hear from you. Drop us a line. 

To learn more about Estate Media, visit their website.

Just in Case

Keep the latest industry data in your back pocket with today’s mortgage rates:

That’s a wrap on this edition of The Blueprint! As we said in today’s Foundation Plans, we love hearing from you. Whether it’s a question or comment, don’t hesitate to reach out.

As we head into the weekend, remember that each day is a gift and a new opportunity to lead the life you want and to become the person you want to be. The mistakes and missteps you’ve made in the past don’t define you. Live as intentionally as you can and be ruthlessly focused on the goals you’ve set out to achieve. You can do it!

Thanks for reading, and we’ll see you back here on Tuesday!

– James and David