First and foremost sorry for falling behind on these. Not really trying to make it a habit to skip updates, just life has been extra hectic and other excuses.
We have 953 existing single family homes on the market today. Inventory is up ever so slightly as we push into the Spring market. The persisting inventory lock up due to current rates vs the rates that most homeowners are in continues to skew valuations higher, or prop them up at a minimum. This is extremely counter intuitive for me and makes me feel like we’re on the edge of a drop off, yet I’ve felt that way since at least 2018 and have been consistently wrong.
Let’s look at numbers and graphs and then get into analysis and assumptions.
March saw 900 units closed MLS wide at a median sold price of $470,000. The median sold to original list price ratio is once again nearing 100% which means buyers are absorbing the inventory at near original list prices. A few months ago we saw this ratio at like 95%, which was similar to 2011 levels.
February showed us 828 sales with a median sold price of around $455,000.
Last year February posted 819 sales at a median of $442,000 and March had 1,077 at $460,000. The fluctuation in volume here is relatively trivial when you compare to what we were dealing with in 2022.
February of 2022 had 1,070 sales at a median price of $466,750 at 101.7% sold to original price ratio. March of 2022 blessed us with 1,367 sales at a median of $477,961 with a sold to original price ratio of over 103%.
Lots and lots of numbers. In summary sales volume dropped significantly after the spike in interest rates at the end of 2022. While we had a few periods of mortgage rates briefly pulling back we has not seen any significant relief in rates since the run up. Graph time.
As you can see from the numberpicture above from the time that lenders started pushing 2/1 buydowns there really has not been any opportunity to take advantage of a refi for any significant savings. And we’re going on 2 years since those products rolled out. What this means is that quite a few homeowners that decided to use the 2/1 products are now staring at their second and final payment increase which will add roughly 10-15% to their monthly mortgage payment. How many people can comfortably handle this, time will tell.
The talk so far this year has been all about rate cuts. The stock market and apparently housing market too has been anticipating 3 rate cuts from the Fed this year. Only one problem. By anticipating rate cuts the market behavior has been as if the rate cuts already happened. What we’re starting to see here locally in housing is for sure surprising me. I’ve got deals in the 300s where we were able to secure the homes at decent discounts, like 3-5% off list price and got what we needed from sellers at inspection. However on higher end properties that are priced competitively we’re sometimes seeing bidding wars, even appraisal gaps coming back. I had a listing a couple weeks ago that got 7 offers and I’ve seen quite a few higher end listings go under contract on multiple offers as well. What this is telling me is that people with higher incomes/purchasing power are betting that the inflationary run up in housing is not reversing but is at a pause. Whether or not that sentiment is right, again, time will tell. However double tops in markets often indicate reversals in pricing, and here locally we have about 5% to run up to test the top.
On the surface everything looks to be going pretty steady. We’ve got jobs numbers that are beating estimates by 50% to the upside this morning. We’ve got wages rising. We’ve got workforce participation and hours worked rising. We’ve got manufacturing rebounding into the green and an unemployment rate that fell back to 3.8%. On paper all of the metrics look great. The only issue with this is that these numbers are often revised significantly down a couple months after posting, when nobody cares to look, and this is indeed an election year. Painting a pretty picture is paramount when political power is at stake.
Without entering tin foil hat territory I just want to remind everyone of the one indicator that seems to always be on point. That is the yield curve. The yield curve between 10 year and 3 month bonds inverted about 18 months ago and went onto the deepest inversion since at least WW2. Since then its rebounded somewhat however remains inverted at historically deep levels. Here is a graph.
As you can see by the dips in the curve predating the gray lines the yield curve is an accurate predictor of recessions. The general understanding among economists, of which I am not one, is that the deeper the inversion and the longer it lasts the harsher the recession that ensues. Based on that logic it’s hard to be overly optimistic about the near term economic outlook. In laymen’s terms, man, how much better can things get? If the market is forward looking, and pricing reflects future outlook, then are we looking for 0% unemployment and infinite productivity? Will AI save us all? That would be wonderful, I’d love a life where AI does all the work for me so I can focus on hiking and spending time with my family. Seems too good to be true somehow.
Since the last update I wrote we’ve had a significant update to our industry that many of you probably read about. The headlines all read about “the end of the 6% commission” and “seismic shifts” in the real estate industry. While the settlement that NAR reached is yet to be finalized we are anticipating changes to our industry in mid July. The most tangible change comes in the form of the way that buyer’s agent’s commission can be advertised. You see forever now the buyer’s agent’s commission, aka the coop, was advertised on the MLS. That rate could be 3%, it could be more, or it could be less. I’ve seen everything between $1 to 5%. When our agents get a contract on a property we ask them to save the MLS sheet as a form of redundancy to guarantee they receive the commission that was advertised. Advertising the coop this way keeps the playing field level for all agents, all buyers, and encourages fairness in the industry.
Naturally if you read the news media you’re under the assumption that sellers are getting ripped off and buyer’s agent’s aren’t worth 3%, if anything. Here’s my truth and the way I see it.
Sellers can save 100% of the commission by just selling their house themselves. All you need to do is market your house, find a buyer, execute a contract and profit. It really is just that simple. The only issue is that 71% of all real estate related lawsuits involve a party unrepresented by a real estate broker. And real estate brokers are involved in approximately 87% of all residential real estate sales. So I think it’s pretty fair to say that 13% of sales leading to 71% of lawsuits has something to do with people not knowing what the fuck they’re doing. I certainly find myself explaining mundane basic concepts to people roughly 100% of the week.
Now you can say wow Iggy, bitter much? Dude you’re just upset that you might make less money after all these years of killing it. And my answer to you is a resounding “nah, bro”. You see my thing is I’ve always found ways to make a living and I’ve never been so stuck in one lane that I can’t go a whole other direction. Like for example as I saw the market slowing instead of trying to kick water uphill my partner and I shifted gears into construction. We’re something like 11 months in, barely getting started and have pushed over a million dollars worth of projects out already. Whatever happens we’re going to find a way to capitalize on it, so to me this commission shit isn’t a threat, it is an opportunity.
Let me explain how this will impact the consumer and why in the short run it will create some winners and a lot of losers. And this is all kind of preliminary to the best of my knowledge with the limited information that we have now type of take, ok? Coop is removed from the MLS, the commission level playing field is gone. This will allow the market to drive commissions. In a bullish seller market like let’s say 2021 buyers agents will have 0 incentive to represent buyers. I remember well dealing with 20 plus offers, with 68 being my personal record shit show I was involved in. Think about it simply, if you have 68 offers, you for sure don’t need 67 of those buyer’s agents. So what we will see in markets like that is what we already saw with a couple scumbag agents here locally. We will see agents hoarding listings and double ending deals with buyers, because the supply demand balance is so out of whack that you truly don’t need a buyers agent to bring you a buyer. However, while the agent double ending the deals is for sure going to love this set up who is advocating for the seller? Who is advocating for the buyer? Oh yea, that’s right, nobody.
Colorado does not allow for dual agency because its a ridiculous concept, and a transaction brokerage relationship on double ended sales does not allow a real estate broker to take sides. So what you end up with is a broker in the middle who’s main objective is to close deals and move on to the next one without even having the ability to look out for either party’s interest. That’s pretty neat right? Incentivizing agents to cut out the other agent so they can make the full commission without worrying about actual “agency” obligations. Very dumb.
Maybe the above seems kind of like an extreme example but I’ve seen it in action, here, locally. You could say something stupid like why not just have the buyers pay their agent’s commission, why should the seller pay it anyway. While the news media would have you asking that question you must understand how insanely stupid that lack of understanding is. Yea, the seller pays their agent. And yea, the seller pays the buyer’s agent whatever it is that was agreed upon, negotiated, up front with the listing agent and then advertised the world over in the MLS. Who’s money does the seller pay that commission with? Oh yea, that’s right, THE BUYER’S. No buyer, no money, no commission.
Also, to emphasize the lack of understanding. There are rules in play that prevent certain buyers from paying a commission at all. Like for example buyers using VA financing are not allowed to pay a buyer’s agent commission. Should agents take on VA buyers for free, at a loss, as a charity? Or do you think VA buyers, the veterans that serve this country, would be put at a disadvantage in the home buying process?
So now lets think about this new way of doing business in a buyer’s market. Those do happen by the way, and they do happen here, despite what a bunch of rookie agents think. When the market shifts in the buyers favor, man, it can be rough on sellers. Since we don’t have a level playing field for commissions buyers agents are going to be able to dictate their worth.
Here is a way agents could and will behave in the proposed market place. Let’s say my buyer finds a house they like. I see it’s been on the market for like 3 months, has had a couple price drops, and still hasn’t sold. My buyers and I are going to figure out to the best of our ability the equity position that the seller has in the property. Then we will do everything we can to capitalize on market conditions and the seller’s equity position. Maybe we offer a much lower purchase price, maybe we ask to max out closing costs per whatever loan program, and then ultimately maybe I ask for a 10% buyer’s agent commission. Hey why not? Your house isn’t selling, the commission isn’t advertised, and I stayed at a fucking Holiday Inn last night. This is called the paint the porch approach. Sure my buyer wants a discount, sure they want closing costs, but this agent’s commission is atrocious! That’s cool, it’s negotiable, but my buyer’s part isn’t. What I’m describing here is a heartless, shitty, and selfish way of doing business. By taking away a level playing field like we’ve had this is being encouraged and you will absolutely hear nightmare stories of desperate sellers getting bent into a 90 degree shape.
So yea, maybe in a seller’s market some sellers will be able to shave a few points of commission. Maybe by not allowing full access to the entire buyer pool by being cheap they will miss out on true market value and lose money while thinking they’re saving money. (This is called the FSBO method, look it up.) However maybe in a slower market sellers are going to be thrilled to pay ONLY a 6% commission when agents come with their hands out asking for whatever they feel like.
This is the short run. As this shit show plays itself out we’re going to get regulations. The minute a lender has to foreclose on a house and realizes that the buyer’s agent took a 15% commission on the sale and their collateral is worth that much less lenders will make rules. The minute that VA buyers are making the news as unable to buy a house because they cant afford an agent, rules will change. The minute that agents double ending 50 deals a year begin to endure the lawsuits and lose their lambos…there will be change. And the funny thing about it is that while no standard for commission ever existed, while it has always been market driven and negotiable, as a result of this dogshit…we will end up with mandated standards from outside both our industry and the market. Cheers lawyers! Now go cheat on your spouses and drive up the price of cocaine with your winnings.