The turning point

We will be taking off for Labor Day, so we will not be in your inbox next Tuesday. We truly hope you can all take this weekend to recharge and get ready for the sprint toward the end of the year.

We do expect things to pick up a little with the rate cut coming. In today’s newsletter, we report on some of the factors keeping buyers on the sidelines, and why we expect that to change.

And if you’re looking for some added motivation, we have a special edition of Foundation Plans below. In this week’s edition of Rise Above the Ranks, we feature a terrific talk that we… well, one-half of us… gave earlier this year. We think you’ll enjoy it.

Have a good three-day weekend and we will see you back here next Friday!

…but before that, let’s get into today’s Blueprint.

– James and David

Pending home sale index hits all-time low

Pending home sales fell 5.5% month-over-month in July, according to the monthly index released Thursday by the National Association of Realtors (NAR). That pushed the index down to its lowest reading since the index began tracking in 2001. The drop was unexpected, as economists had actually predicted a 0.1% rise, according to a Wall Street Journal survey. Here are the key takeaways from NAR’s report on July:

• Pending transactions were down 8.5% YOY

• Contract signings declined month-over-month in all four U.S. regions

• Pending home sales increased in the Northeast YOY but decreased in the Midwest, South, and West.

Our take

Despite solid job growth numbers and a higher inventory of homes for sale, we’re still seeing affordability problems for buyers. Nonetheless, we’re not too pessimistic. Mortgage rates are now at their lowest level in 16 months, and we expect them to drop lower after the Fed FOMC meeting in September. Basically, while we don’t expect home sales to spike anytime this year, we do expect their numbers to improve.

Why buyers aren’t buying

The drop in mortgage rates hasn’t exactly set a fire under homebuyers. Mortgage applications are down 9% from a year ago. However, there is some good news. Mortgage-purchase applications are up 1% compared to last week on a seasonally adjusted basis, suggesting that at least some buyers are coming off the sidelines. In its latest update on buyer attitudes, Redfin identifies four factors currently holding a lot of buyers back:

• Lack of clarity about the new rules: Many would-be buyers and sellers are waiting to see how the post-NAR settlement rules play out before getting into the market.

• Home prices are still too high: Even though monthly payments are declining, home sale prices are just a few thousand dollars shy of July’s record high.

• Waiting for even lower mortgage rates: A substantial number of homebuyers are hoping that after the Fed cuts interest rates in September, mortgage rates will fall even further.

• Waiting on the election: Interestingly, some buyers are genuinely hesitant to make a home purchase before an election and all the fallout that might follow.

Our take

We believe that more buyers and sellers will jump into the market in a few months, once everyone has a better understanding of how the new NAR rules will play out in actual real-estate deals. This is a great opportunity for agents to become leaders in their markets. Since people are lacking clarity, it is truly valuable to be able to educate potential clients on the changes and help guide them into this new era. In our previous editions, we have done our best to clarify all these changes, so agents can easily communicate them. We will continue to do so. 

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Markets where inventory is above pre-pandemic levels

There are 40% more homes on the market right now than there were last year at this time, according to Altos Research. Currently, there are just over 700,000 single-family homes available, with approximately 10% entering contracts each week, and an additional 75,000 new listings coming onto the market. However, despite this uptick, there are still around 300,000 fewer homes on the market now compared to August 2019. While inventory is climbing, it’s still pretty hard to come by. Of course, the inventory situation is different based on your area.

These are the 8 states with more unsold inventory now than five years ago:

1. Texas

2. Florida

3. Oklahoma

4. Idaho

5. Arkansas

6. Alabama

7. Tennessee

8. Colorado

Our take

There are two reasons to pay attention to these trends. On the positive side, the quicker we return to "normal" market conditions, the better it will be for homebuyers. They’ll benefit from a wider selection of homes and less upward pressure on prices, which is crucial in a market where affordability is already stretched. On the flip side, areas with a higher supply of unsold homes are more likely to experience price declines. Those predicting a drop in home prices are focusing on regions where supply significantly outweighs demand, with these eight states standing out as prime candidates. While it's too early to make any definitive call, this is undoubtedly a critical trend to watch.

The news that just missed the cut

• This town hasn’t charged property taxes in 37 years! 

• NAR will appeal DOJ investigation to the Supreme Court

• Meet the latest start-up hoping to capitalize off the new real estate rules

• How agents can make the most of Labor Day Weekend

• Coeur d’Alene, ID – keep an eye on this rising luxury market

Foundation Plans

Advice from James and David to win the day

James here. Usually in this section, we lay out some of our best real estate tips and advice. Today, we’re going to do something different. I’d like to encourage you to take a look at a recent talk I gave as one of the Unite keynote speakers at the Inside Real Estate Conference. You can hear it or watch it in the latest episode of Rise Above the Ranks. 

While I gave the talk earlier this year, we are finally able to release it, and I think it’s coming just at the right time. Labor Day weekend is a turning point in the year. Basically, you have from this coming Tuesday until Thanksgiving to absolutely crush it before sales really slow down during the holidays.  

We know this has not been an easy year so far. Deal volume is low right now. While it won’t spike, we do think that there will be an uptick in sales volume when we see the rate cut. To capitalize, you’ll have to leverage sweat equity along with your moxie and drive. 

In my talk, I explain some of the things I did throughout my career to try and get a leg up on the competition. Why, when Dave and I moved all the way to Los Angeles, we literally door-knocked Leo DiCaprio’s home without even knowing him! 

I think this talk is full of great advice and motivation. I hope you give it a listen. After you do, drop me a line. I’d love to hear what you thought.

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:

We hope you have a wonderful holiday weekend friends. Take some time to rest, recharge, and regroup. Things are about to get interesting in the next few months. So get ready! 

We’ll see you back here next Friday!

– James and David