25 days and counting

Today marks 25 days until August 17th, when the changes from the NAR settlement take effect. We are seeing a lot of heightened discussion and anxiety surrounding these changes–specifically about the rumored death of buyer agency–and we’d like to do our best to separate reality from hysteria.

In today’s Foundation Plans below, we give you several reasons why we think the future isn’t nearly as uncertain or terrible as some people are claiming.

And if you want some more good news, make sure to check out our first story. It’s good news for buyers, and for the housing market overall.

With that, let’s dig into today’s Blueprint!

– James and David

Housing inventory is spiking

Housing inventory is up almost 40% over last year nationwide. That’s according to the latest update from Altos Research via HousingWire. Here’s what else their research shows:

• Inventory grew 2.6%, from 651,453 units to 668,383 units, from July 12th to July 19th. This is up from 1.88% growth during the same week last year (471,603 units to 480,448 units)

• The 668,383 units marks the peak for inventory this year. For perspective, we are now two years removed from the all-time inventory bottom, which hit 240,497 in March 2022.

• Here are the number of listings for last week over the last several years: 

  • 2024: 68,681

  • 2023: 62,859

  • 2022: 80,089

  • For context, active listings for this week in 2015 were 1,201,808

• There are 1% more pending home sales under contract compared to last year

  • 2024: 382,435

  • 2023: 378,227

  • 2022: 418,983

Our take

This is excellent news for buyers. Low inventory has plagued the housing market since the pandemic. While the current level is still far from average, it’s a more tolerable situation. Home prices are still rising in 2024, but the pace is significantly slower than in 2020 and 2021. We expect the rate of price growth to cool down even further in the second half of the year.

Metros with highest jumps in home prices

National home prices at the end of June 2024 are up +45% compared to March 2020, according to Resiclub’s analysis of the latest data of Zillow’s Home Value Index. Of the 50 markets that have seen the biggest price spikes since then, only one of the markets (Knoxville, TN: +74%) is among the 100 largest housing markets by population.

Here are the top 5 markets where home prices have gone up the most in the past 4 years (and their percentage growth):

Our take

If you haven’t heard of most of these markets, you’re not alone. As we noted, only Knoxville is among the largest housing market by population. The rest are smaller markets that exploded during the pandemic housing boom. Although these second-home vacation towns or “Zoomtowns” didn’t become major population centers, their population numbers did spike along with their housing prices. Make sure to keep tabs on the price and inventory tracker from Resiclub. It’s an excellent resource for us agents. 

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All-cash investor purchases hit low

The share of investors purchasing homes with cash fell to 64% in Q1 2024, according to a recent Realtor.com report. That’s the lowest it’s been since 2008. It’s a stark difference from the Q4 2021, when 69.7% of investors purchased with no mortgage contingency to help them win ultra-competitive bidding wars.

However, there are still places where investors are making all-cash deals. Here are the top 5 metros with the highest share of all-cash investors in Q1 2024:

1. Portland, ME: 81.3%

2. Albuquerque, NM: 81.2%

3. Toledo, OH: 80.5%

4. McAllen, TX: 79.5%

5. Ogden, UT: 79.0%

Our take

This is good news for regular homebuyers, who won’t have to compete with as many investors putting down hard cash. It’s also important to know who these investors are. Small investors (defined as having purchased 10 or fewer homes since 2001) made up 62.6% of investor purchases from January to March 2024. That’s the highest small-investor share in this data’s history since 2001, according to Realtor.com. Since the majority are small investors, not big corporations, many of them are using financing despite surging interest rates. Moreover, many consumers seem to be holding on to what liquid funds they have right now and opting for financing to avoid becoming cash-poor.

The news that just missed the cut

• Take a look at Tom Ford’s $250M real estate portfolio 

• Use this to know if your clients are ready to buy

• How real estate stocks have performed over the past decade

• AI tools perfect for real estate agents, according to ATTOM Data

• August 17th – what to know when the NAR settlement rule changes start

Foundation Plans

Advice from James and David to win the day

On August 17th, the rule changes required by the NAR settlement will kick in. As the date approaches, we’re seeing a rising level of discussion and anxiety about these changes. In particular, we’re seeing 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 – Even before Sitzer/Burnett and the NAR settlement, commissions have been negotiable in both residential and commercial real estate, even though most residential sellers and buyers were unaware. However, unlike residential real estate, most commercial listings never listed the compensation for the procuring broker. It was always negotiated. That didn’t lead to the death of buyer agency in commercial real estate, so the same outcome should hold for residential real estate. Depending on the market, buyer agents currently make between 1.5% to 3% on average per transaction. Use that as a baseline to track how much you are earning in commissions after the changes go into effect.

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 approaches 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 where buyer agent commission is no longer an entitlement. However, 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 only going to 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.

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Just in Case

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

As we said up top, let us know what you think. Even if you disagree with us, drop us a line. We want to hear from you.

We’ll see you later this week on Friday!

– James and David