A tale of two markets

The luxury and non-luxury markets don’t necessarily play by the same rules, and that is made clear in our first story today. Luxury home prices just hit an all-time high, and yet, as you’ll see below, sales are still growing.

This is why it is so key to stay up to speed on all the different areas of the market, because they don’t operate in the same way. Trends we might see in one sector might not apply to others.

But one thing that applies to every single area of our business is negotiation. Today, in Foundation Plans, we are going to do a two-part series on this crucial skill. We’re giving you our best tips for getting the best outcome out of every negotiation you handle. As we count the days until the changes from the NAR settlement take effect, we feel it is so important to brush up on these skills.

– James and David

Luxury home prices spike to all-time high

The typical U.S. luxury home sold for a record $1,180,000 in Q2, up 8.8% YOY, the biggest increase in nearly two years and double the growth rate of non-luxury homes. That’s according to Redfin’s latest update. Here’s what else the company reports from Q2:

• Non-luxury home prices rose by 3.8% YOY, reaching the median high of $342,500

• Non-luxury home sales fell 3.4% to the lowest level in a decade

• Luxury home sales grew 0.2%

• Luxury homes sat on the market a median 40 days, two days longer than last year, as inventory rose to the highest Q2 level since 2021.

• Luxury inventory rose 9.7% YOY, growing to the highest level in 3 years, while non-luxury inventory rose 3.9%. 

• Here are the top 5 most expensive home sales in Q2:

  • Glenwood Springs, CO (Aspen): $77M

  • Glenwood Springs, CO (Aspen): $66.5M

  • Los Angeles, CA: $62.8M

  • Miami, FL (Miami Beach): $62.5M

  • Glenwood Springs, CO (Aspen): $59M

Our take

This report shows that mortgage rates are not as much a barrier for luxury buyers, as they have the cash. According to NAR, properties priced over $1 million were the only category to see a sales increase in June. By the end of Q1, 45% of high-end US homebuyers were paying all cash, the highest rate in at least a decade. It just goes to show that the housing market is genuinely split into two realities right now.

Stale listings post the biggest inventory increase in a year

Redfin reports that 64.7% of homes on the market in June had been listed for at least 30 days without going under contract, up from 59.6% a year earlier. That marks the biggest annual increase in a year, and the highest share of any June since 2020. Here are other key takeaways from Redfin’s update:

• On the national level, 42.6% of homes that were on the market in June had been listed for at least 60 days without going under contract, up from 38.4% a year earlier, the biggest annual increase in nearly a year.

• On a state level, stale inventory is growing fastest in Texas and Florida

  • The biggest uptick in the U.S. came in Dallas where 63% of listings sat on the market for at least 30 days in June, up from 52% a year earlier

  • Four metros in Florida saw inventory spikes of 9%-10%: Tampa, Fort Lauderdale, Jacksonville, and Orlando

Our take

It’s not hard to understand what’s going on here: record-high home prices and elevated mortgage rates are giving buyers cold feet, causing homes to sit on the market longer. While demand is slow, supply is relatively high. In June, the total number of homes for sale posted its biggest year-over-year gain on record because even though new listings are low, many listings are sitting on the market, causing inventory to pile up. We anticipate this trend will reverse once mortgage rates fall when interest rates are cut. 

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Top 10 markets with the highest-priced homes

Home sellers achieved a 55.8% profit margin on average single-family home and condo sales in the United States in Q2, according to ATTOM’s newly released report. This figure represents a 1% increase from Q1 2024, but an annual decline of 1% from this time last year.

The Midwest and Northeast benefitted the most from the latest price spike, with approximately 75% of metro areas in those regions experiencing annual gains of at least 5%. However, there is no change at the top, with Western cities having the priciest homes.

Here are the top 10 housing markets with the highest median-priced homes in Q2 2024:

1. San Jose, CA

2. San Francisco, CA

3. Los Angeles, CA

4. San Diego, CA

5. Seattle, WA

6. Boston, MA

7. Honolulu, HI

8. New York, NY

9. Washington, DC

10. Sacramento, CA

Our take

This report reveals an interesting trend. Although U.S. home prices reached a new record of $365,000 during this year’s spring home-buying season, returns on investment remained nearly unchanged nationwide. As mentioned above, home sellers gained 1% in profits quarter over quarter, while seeing a 1% drop from last year. In other words, the housing market has basically stayed the same over the past two years in terms of profit margins, despite all the other changes (such as construction and mortgage rate increases).

The news that just missed the cut

• How this family bought their dream home with a 2.5% mortgage rate!

• Monitor these key metrics to tell whether you’re in a buyer’s market.

• Yellowstone has a major housing problem 

• Here’s how much apartment space $1500 gets according to RentCafe.

• This is eXp’s new listing agreement form.

Foundation Plans

Advice from James and David to win the day

Negotiating has always been an important skill, and it’s going to become even more crucial when the changes from the NAR settlement go into effect in a few weeks. In today’s edition and Friday’s edition, we are going to offer some tips on how you can sharpen your negotiation skills.  In our view, negotiation involves a strategic dialogue between all parties to reach a mutually beneficial agreement. Effective negotiation requires a blend of these three approaches:

Preparation – This is the cornerstone of successful negotiation. Solid preparation involves thorough research of the property, the market conditions, and the needs and constraints of both the buyer and the seller. A well-prepared negotiator knows the property's fair market value, comparable sales in the area, and the current demand-supply dynamics. This allows the negotiator to set realistic expectations and identify the negotiation boundaries. For example, knowing the average time properties stay on the market can give leverage in timing the offer or counteroffer. Agents also need to anticipate potential objections, which almost guarantees they are ready for anything.

Understanding Interests – It’s important to understand all sides of the negotiation. The buyer’s position might be to purchase a property at the lowest possible price, while the seller’s position is to sell at the highest price. However, their interests might include factors such as the urgency to buy or sell, the need for certain closing dates, or specific property features. By knowing these motivations, a negotiator can propose creative solutions that lead to a win-win outcome for both parties. For example, a seller who needs to move quickly might accept a lower price if the buyer can close the deal sooner. Good negotiators can use this information as leverage to secure the best position for their clients.  

Building Relationships – Positive relationships are key to successful negotiations. Establishing trust and rapport can significantly impact the willingness to compromise and cooperate. Effective communication, active listening, and empathy are essential in this regard. When both parties feel respected and understood, they are more likely to engage in open dialogue and seek mutually beneficial solutions. This also means maintaining professionalism and integrity throughout the process. Even if negotiations become challenging, a respectful and honest approach can help preserve the relationship and facilitate smoother future interactions. Remember: real estate isn’t a “one-and-done” game. Not only will you hopefully deal with the sellers and buyers again, you’ll almost certainly see the agents in your market again. It’s important not to burn any bridges.

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Just in Case

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

When it comes to closing deals, finding clients, negotiating sales, and marketing yourself, what are your biggest hangups and holdups? We want to know! Drop us a line anytime. We want to hear from you.

We hope you crush your goals this week. Thanks for reading and we’ll see you back here on Friday!

– James and David