State of the Real Estate market isn’t the same old thing this month, as there are some changes, in both the rules for real estate agents and interest rates.
First, the results of the verdict in the court case against major real estate organizations and companies will be in effect by the time of the next issue of this newsletter, so after nearly a year of speculation, we’ll finally get a chance to see what effect the ruling has in the real world.
So far the only real effect has been that real estate firms, including the MLS (multiple listing service) have paid fines of about $1.8 billion. The class action law firms will collect somewhere between 30% and 40% of that (which makes RE commissions look pretty puny). Individuals who sold homes in the time frame covered by the case can apply for a portion of what’s left, as a settlement. I’m scratching my head over the ‘affected consumers’ who bought and sold at the same time. If they were so negatively affected on one transaction (as a seller), wouldn’t that mean they scored on the other transaction (as a buyer)?
However, back in the real world, there are two big changes going on. First off, interest rates are dropping. The Federal Reserve, to fight inflation, has kept interest rates high, but unfortunately those high interest rates are slowing down the whole economy, so now they are reducing interest rates, hoping to create more jobs. In other words, the fact the stock market has just tumbled has to do with a slowing US economy, which was brought on by high interest rates (and no doubt other things), so now the Fed is reversing course.
Lower interest rates will help people who have higher interest mortgages, if they can now refinance. However, it isn’t going to help the housing shortage much here in Central Mass, because lower interest rates make buying a house affordable to more people, meaning more demand, which will send prices up. I’ll just say I’m happy not to be Jerome Powell, the Chairman of the Federal Reserve. He has a tightrope to walk, and is going to be pushed in all directions since we’ve got a big election coming up. As of 8/6/24, according to Nerd Wallet, a thirty year fixed mortgage is at 6.28% and a 15 year fixed is at 5.297%.
The other interesting change in house buying is that the changes to how buyer agents are compensated are also going into effect soon, before the next newsletter. Prior to this change, buyers assumed they were rolling their agent fee in to the purchase price and according to the lawsuit, sellers were confused as to whether they paid the buyer agents, and if they did, that wasn’t fair. The buyer agents are the people who represent people wanting to purchase a home, which in this market has been a very tough job, since buyer agents are paid on commission, which is only paid if the buyer actually bought the house, beating out all the other buyers looking for a home to buy.
Now, the buyer agent commission cannot be posted on the MLS (although it can be posted elsewhere), but more importantly, with this ruling and settlement, the buyer agent is now required to get buyers to sign a contract tying them together from the first house they visit together. You can see why buyers would be skeptical about that (we barely even know each other!), and it must specify how much (and how) they’ll be compensated.
This has the potential to get really complicated, but my guess is that it’s really not going to change things much. The home sellers have always been able to offer the buyer agents whatever commission rate they want, and home sellers pretty much have to offer around the traditional 2%, unless they want to do their own advertising to get potential buyers to show up, and don’t care if the offers come in on a cocktail napkin, the buyers have no guidance in the process, and/or the offers are potentially all fouled up.
So in summary, the real estate market has a few kinks in it at the moment, which will no doubt be ironed out quickly, and it’s now even more of a seller’s market, since potential buyers can afford to offer a little more, thanks to interest rates dropping. However, the real drivers of this market continue to be the scarcity of homes for sale and the large number of people looking to buy a home in Central Massachusetts.