In recent weeks, I’ve talked about the changes taking place in the Real Estate industry. Since those changes took affect just yesterday, the 17th of August, I don’t have any updates at this time. For those who haven’t been reading my columns or haven’t followed this story in the news, I’ll briefly recap.
Due to a class action lawsuit settlement, a listing agent can no longer advertise a “commission split” with a buyer’s agent. In addition, a buyer’s agency agreement must be signed before an agent is allowed to show property to a potential buyer. In that agreement, the buyer may be required to indicate he or she will pay the buyer’s commission IF the seller, doesn’t agree to the split. I’ve given opinions on this and will follow up more, after we start seeing the new normal.
So, for now, let me touch on a couple of other Real Estate topics. First of all, interest rates. I have multiple clients who’ve wanted to move to a new home but can’t afford to give up their current rate of 2.5% – 3%, from 2 – 3 years ago, for a new rate which would be 6.5% – 7%. I totally understand this. At the same time, let me touch on a couple of things to think about.
When I was a kid, interest rates at one point hit 18.63%. A few years later when they dropped to the low teens, consumers thought THAT was phenomenal! Now, some folks are waiting for rates to go back down to what they were during the pandemic era. Well, those rates were unrealistic. I’m not saying it won’t happen again but let me give you a couple more things to think about.
- When rates were so crazy low, it led to buyers fiercely competing against each other. Buyers were waiving inspections and offering thousands more than asking price. Yes, inflation was awful, and supply and demand is a problem, but rates also caused prices of home prices to go up due to bidding wars. Once new comparable prices were established, this led to sustained higher prices.
- It’s an election year. Yes, interest rates are driven by the Federal Reserve and not directly by elected officials, but let’s not be naïve. Politics is a factor. I’m not saying rates will drop in the next couple of months, but if they do, it’s possible we could have bidding wars again. Be careful what you wish for!
Finally, I don’t want to scare folks, but in the month of June, according to Redfin, there were 56,000 Real Estate contracts cancelled nationwide. In addition, although foreclosure rates aren’t up nationwide, there’s been an increase in quite a few states in the first half of 2024. This is according to ATTOM. If you’re too young to remember the Real Estate crash of 2008, we had an incredible number of foreclosures. Those were due mostly to risky lending practices in the mortgage industry and although the reasons for the current foreclosures could be different, this is nonetheless a cause for concern for economic experts.