A rare event

As you know, we’ve spent the last couple of decades living and breathing information about the real estate business. That’s why it’s very rare when we come across reports and data even we haven’t seen before.

Well, that’s the case with our third story today. We saw a report on assumable loans that was so unique we knew we had to share it with you. However, as we explain below, this area of the business is tricky, so we suggest treading carefully if you choose to pursue it.

Also, in today’s Foundation Plans, we finish our two-part mini-course on the art of negotiation. Whether you’re a novice looking for advice, or an expert wanting to brush up on your skills, we think these quick tips can help.

Now, let’s get into today’s Blueprint!

– James and David

Home prices fell in July for first time ever

Median home prices fell in July, marking the first-ever seasonal decline in a month that’s typically a peak time for home sales. According to Realtor.com’s latest housing update, the national median list price dipped 1.1% from $445,000 in June to $439,950 in July. Here’s what else the listing service reported from July:

• 18.9% of listings saw their asking prices drop, up from 15.5% a year ago.

• The total number of homes for sale jumped 36.6% YOY and marked the ninth consecutive month of growth.

• All four regions of the U.S. saw an increase in active home listings:

  • South: 47.6%

  • West: 35.4%

  • Midwest: 22.7%

  • Northeast: 14.7%

• The price per square foot saw huge jumps in the 50 largest metros when compared to July 2019, with growth rates of between 24.1% and 81.9% 

• The typical home spent 50 days on the market, five more days than the same time last year and five more days than in June

Our take

This is all good news for homebuyers. They have more choices in listings, leverage in negotiations, falling home prices, and now listing spikes in some of the most affordable classes of homes. For example, in July, the growth in homes priced in the $200,000 to $350,000 range outpaced all other price categories, as the number of homes for sale in this range grew by 47.3% year over year. As mortgage rates continue to fall, expect more homebuyers to come off the sidelines, especially after the Fed’s September interest rate cut.

Proposed updates to Mortgage Interest Deduction

In a recent policy paper, The National Association of Home Builders (NAHB) highlighted an important change that affects every homeowner. Since the Tax Cuts and Jobs Act of 2017, only 9.6% of tax filers claimed the mortgage interest deduction (MID) in 2021, a significant drop from 30.9% in 2017. This shift occurred because more taxpayers now use the standard deduction instead of itemizing.

As fewer people benefit from the MID, its effectiveness in making homeownership more affordable for the middle class has diminished. The NAHB suggests updating the mortgage interest deduction to align with the current tax code and to better support prospective homeowners facing affordability challenges. They propose a mortgage interest credit as a more effective housing tax incentive.

Our take

Like the NAHB, we support converting the mortgage interest deduction into a targeted homeownership tax credit. This credit, applicable against mortgage interest and property taxes, would enhance tax code progressiveness and promote housing opportunities for lower and middle-class households. By benefiting all homeowners with mortgage interest and an income tax liability, this proposal should be seriously considered in the 2025 tax debate.

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States with the highest number of assumable loans

More than 11 million homeowners in America have assumable loans, according to U.S. News & World Report. According to Realtor.com, up to roughly 25% of mortgages are assumable, even if one excludes USDA loans. But there’s a catch. While assumable loans are appealing since roughly 85% of outstanding mortgages have a rate below 6%, they are hard to come by. Only government-backed loans such as FHA, VA, and USDA loans are assumable.

Here are the states with the highest share of assumable loans:

1. Alaska (39.3%)

2. Wyoming (34.4%)

3. Virginia (34.1%)

4. Nevada (32.8%)

5. Oklahoma (32.5%)

6. Maryland (32.1%)

7. Georgia (31.5%)

8. Louisiana (31.5%)

9. New Mexico (31.4%)

10. Delaware (30.8%)

Our take

This is an incredibly useful report. It’s the first one we have seen that lists the states with the most assumable loans. Assumable loans are very appealing to buyers facing affordability issues. This can help them get a below-market interest rate on an assumable mortgage, and shorten the life of a home loan. However, not only are assumable mortgages hard to find, the paperwork is often complicated. The majority of lenders aren’t used to dealing with assumable loans, so they don’t know how to handle them. Fortunately, new companies such as Assume Loans, Roam, and AssumeList can help buyers navigate the process.

The news that just missed the cut

• The Federal Reserve sets the stage for a rate cut

• KKR sees 2024 as ‘Sweet Spot’ for real estate investing

• Should homebuyers wait until the Fed cuts rates?

• NAR releases new resources agents can use to explain the upcoming changes

• “Over the top” doesn’t do this listing justice

Foundation Plans

Advice from James and David to win the day

Today, we conclude our two-part course on negotiations. In Part 1 on Tuesday, we gave you general advice on how to negotiate. Now we’re going to give you specific tips for how to improve your negotiation skills. 

1. Know all the contracts and contract options allowed in your state – If you can’t clearly explain a contract, its different outcomes, and the options for buyers and sellers, you’re doing yourself and your client a disservice. It’s important to know all state regulations before you even get to contract. It’s our job as agents to know what every single document says and what it means to the consumer. This is the first crucial step in making sure you are fully prepared to approach the negotiating table.

2. Use the 1-3-1 mindset to organize your strategy – The 1-3-1 mindset is a mental road map to handle issues your clients may face. Whenever they encounter a problem (the first “1”), help them clarify the exact issue they are facing. Then you can typically give them 3 options: walk away from the deal, accept the problem as is, or find a compromise or solution. Your recommendation (the final “1”) is how you solve the problem. This is such a great approach because it not only guides you, it guides your clients, and that is ultimately what we want to do through the buying and selling process.

3. Think through the options before meeting your client – As we mentioned in Part 1, you need to understand your client’s interests and the interests of the party on the other side of the table. As in chess, there are only certain moves you and them can make, so you can game it out and strategize for anything that might happen. You don’t want to negotiate on the fly. Rehearsing your responses will help you react in the moment.

4. Don’t rush or pressure your clients – While there can be deadlines in this business, it’s also important to give your clients as much time as possible when you can. Letting the situation breathe, and giving them space to calm down and think, can help them make logical decisions, instead of letting their emotions get the best of them. 

We can assure you these four strategies combined will help you approach your next negotiation with confidence and peace of mind for both you and your clients.

For more on negotiations, watch this from fellow agent Tom Toole. His excellent post inspired and stimulated our thoughts on the matter.

To learn more about Estate Media, visit their website. And if you haven’t done so already, fill out this brief survey designed by EM. One lucky entrant will win a $500 Whole Foods gift card!

Just in Case

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

“The distance between dreams and reality is called discipline.” — Paulo Coelho

Strive to make your dreams come true friends. Take action. You don’t need to be perfect; just improve every day. You can do it! Thanks for reading. We’ll see you back here on Tuesday!

– James and David