Change is Coming

Today’s newsletter is jam-packed with info, and some very exciting info at that. In our first story, we give you our take on the excellent inflation news we’ve just received and what we think it means for the short-term future of our industry.

Then we look to the long-term future. Tomorrow marks the day when the changes from the NAR settlement take effect. We know there is a lot of excitement and angst about these changes, so we want to do our best to help you prepare.

In today’s Foundation Plans, we address some of the misconceptions that many people still have about how these changes will affect our business. We encourage you to read them and share them with other agents and clients. 

And now, on with today’s Blueprint

– James and David

Great news on inflation!

Headline CPI Inflation declined to 2.9% year-over-year, the lowest level since March 2021. However, it did increase 0.2% month-over-month. That is from the latest inflation report from the Bureau of Labor Statistics. Here’s what else the BLS reports via Bloomberg.

• Core CPI inflation declined to 3.2% year-over-year, the lowest level since April 2021. However, it also grew 0.2% month-over-month

• All the macro-indicators published this week beat their estimates:

  • PPI (YOY) – 2.2% vs. 2.3% (est.)

  • CPI (YOY) – 2.9% vs. 3.0% (est.)

  • Retail Sales (MOM) – 1.0% vs 0.4% (est.)

  • Weekly Jobless Claims – 227k vs 236k (est.)

Our take

There are no certainties when dealing with markets, but with Core CPI rising at its slowest rate in three years and Headline CPI now under 3% YOY, it is extremely likely that the Fed will cut rates by at least a quarter point in September. This is exactly what the housing market needs. While we welcome this cut, we’re not Pollyannish about how it will affect transaction volume. The decline in mortgage rates at the tail end of the buying season is unlikely to boost new home sales meaningfully. We expect a slight bump in sales during the second half of 2024 at best but anticipate a larger bump in sales in 2025. Still, this is welcome news all around.

U.S. construction boom is sending rents lower

In July, 33.2% of landlords offered at least one rent concession, according to CNBC. Also, the median asking rent prices for apartments in one-to-three-bedroom units fell, marking the first time that’s occurred since 2020. Here’s what else the network reports:

• More multifamily units were completed in June than in any month in nearly 50 years

• This construction boom has resulted in lower rents and other benefits for renters

• Landlords are now adding rent concessions like free weeks of rent or free parking to attract new renters

• 45 of the 50 largest metro areas in the U.S. saw an increase in rent concessions

• Here’s how the median asking prices fell: 

  • Studio or one-bedroom apartment fell 0.1% to $1,498 per month

  • Two-bedroom apartments fell 0.3% to $1,730 per month

  • Three-bedroom units fell 2.4% to $2,010 per month

Our take

This is the kind of news we like to see. Since shelter costs are going down, this confirms that inflation will drop even further. Also, it highlights an issue we keep addressing in this newsletter–the best way to address housing affordability isn’t by focusing on increasing demand, but by focusing on increasing the supply of residential dwellings of any kind (single-family homes, apartments, condos, etc.) We welcome any proposal that incentivizes building more residences, whether for first-time buyers or not.

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Top markets where investors bought the most

Investor home purchases rose 3.4% year-over-year in Q2 2024, marking the biggest increase since Q2 2022, according to Redfin. In total, investors purchased $43 billion worth of properties, buying 1 of every 6 U.S. homes that sold. The total amount purchased by investors is up 13.7% from a year earlier. Single-family homes were the most popular property type among investors, accounting for 69% of their purchases. 

Here are the top 10 markets where the share of homes bought by investors increased the most year-over-year:

1. Las Vegas, NV – +27.0%

2. San Jose, CA – +27.0%

3. Sacramento, CA – +18.9%

4. Los Angeles, CA – +17.9%

5. San Francisco, CA – +17.8%

6. Anaheim, CA – +15.7%

7. Portland, OR – +14.8%

8. Milwaukee, WI – +12.0%

9. Denver, CO – +11.5%

10. Washington, D.C. – +10.8%

Our take

It’s a myth that large institutional investors are purchasing all the homes and leaving nothing for the little guy. When Redfin talks about “investor purchases”, it’s talking about both institutional and mom-and-pop investors. That said, this report shows that investor activity in the housing market is stabilizing following several years of dramatic ups and downs. Investor home purchases more than doubled during the pandemic homebuying boom in 2021. Then, as declining rents and home values ate into potential profits, plunged nearly 50% last year. We expect more investor activity to come in 2025 as a result of falling mortgage rates. Already we’re hearing talk of the resurgence of BRRR.

The news that just missed the cut

• The CRM that's changed our business for the better

• Real Brokerage launches its resource for agents navigating the NAR settlement changes

• Local businesses every agent should have in their referral network

• How NBC's "Today" covered the new rule changes

• We can’t believe this crazy negotiation strategy worked

Foundation Plans

Advice from James and David to win the day

August 17th is almost here. Tomorrow is the big day when all the changes from the NAR settlement kick in, but there are still a lot of misconceptions about what they mean for our business. Today we’d like to help clear up some of those misconceptions as best we can:

NAR settlement DOES NOT force agents to reduce their compensation – Realtors can still set their prices and services. Negotiation has always been the norm in our industry. The settlement doesn’t impose any limits on what realtors can charge or the services they offer. Sellers and buyers have a variety of options, and fees are determined through negotiation. As this report shows, most sellers and buyers were genuinely unaware that fees were negotiable before Sitzer/Burnett. Honestly, most people don’t know much about the homebuying process. Agents can be of real service here by educating them.

NAR settlement DOES NOT prevent sellers from paying a commission to a buyer’s agent –  Sellers have the choice to offer a commission to a buyer's agent. It’s a key element for successful property sales. This practice incentivizes buyer's agents, leading to increased exposure and selling prospects for sellers. 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.

NAR settlement DOES NOT prevent buyers from asking for concessions from sellers to pay buyer agent fees – As it has always been the case, sellers may choose not to pay buyer agent compensation, but nothing in the settlement prevents them from paying the buyer broker using the cooperative compensation model. Buyers may request concessions or include contingencies for compensation, and sellers can display what commissions they’re willing to pay on the website of their listing agents. All that the settlement requires is that the buyer compensation is not listed in its own separate field in the MLS AND that buyer agents now must sign an agency agreement with their clients before they show a property. 

We’ll be saying more after the August 17th changes start. In the meantime, use these resources to get yourself ready for all the adjustments that are about to commence.

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:

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

Strive to make your dreams come true friends. Your dreams become a reality not when you ruminate or talk about them but when you take consistent action. You can do it! Thanks for reading. We’ll see you back here on Tuesday!

– James and David