We are trying to reach audiences in different places – this will end up on Instagram – but I like playing them here too for those who prefer videos even though we acknowledged last week that the Fed cut is a nothing-burger for now. Every message has it’s own personality though.
Hat tip to Jorge who sent in this interview with Jeffrey Gundlach, the prominent bond trader who speculates with confidence on the Fed’s half-point cut and what it means for the markets. He speaks quite knowledgeably about everything except the future of the housing market, which he called the ‘wild card’ for the economy.
This video starts where he says that he expects another 3/4% Fed cut this year, and then housing:
He said that none of us really know what’s going to happen……but let’s use math to predict the future.
My Theory:
It’s the HIGHER HOME PRICES that are locking in the current homeowners, not mortgage rates.
Everyone who bought a home before 2022 is enjoying a bonanza of new-found equity. Let’s use the 2019 buyer for an example. They hit the jackpot to buy a regular home for $1,300,000 back then, and now it’s worth around $2,385,000 – wow, an extra million dollars of equity, just like that!
Some may have a good reason to move, and they are DREAMING about using their same equity, and same mortgage amount to buy up and live with a slightly-higher rate.
But they can’t buy a much-better house for $2,385,000 – they already own a similar-sized house! The old house that was worth $1,300,000 is now $2,385,000. So they have to spend more to make it worth moving.
My rule-of-thumb is 50% more, or $3,577,500.
But let’s say that they work with a really sharp, experienced realtor and find a home that makes it worth moving for $3,200,000 and use ALL of their equity from the old house after closing costs:
Let’s also point out that in California the property taxes would go up an additional $1,742 per month, so the $11,345 + $1,741 = $13,086 MORE PER MONTH to move to a better home in the same area. Even if rates were to drop to 3.5%, the combined P&I+T = $10,713 per month.
“You’re killing me, Jim – aren’t there any other alternatives?” Yes, there are two:
That’s it, or throw down another $1,000,000 in cash to keep the loan amount down where it was.
What does it mean for the 2025 market?
Mortgage rates should be lower than they are today, and probably in the mid-5%s. There will be a new president, and all the wait-and-see buyers who were determined to see the Fed cut rates before venturing out again will be storming the streets en masse. Those first-time buyers and out-of-towners are used to these prices now and will succumb.
What about the supply? We will have a similar number of deaths, divorces, and job-transfers (The Big Three) who always sell every year. Will those who bought a home since 2022 who made a mistake and bought the wrong house be motivated to sell? Not unless they can buy something at least equal or better – the ego can’t take a step down, so they may just refi to a lower rate instead.
But those who already own a house here will appreciate it even more, because once they look around, they will realize that their existing home will have to last them forever – they’re not moving!
Statistics are quirky – there are always things that happen that defy explanation. Look at the uptick in inventory in today’s reading, and note that the same thing happened last year!
The number of pending listings has been riding above last year’s pendings count, which is interesting.
Having more actives could trigger a wait-and-see feeling in buyers, but there should be some tolerance because the inventory has been so much lower than ever before. It appears that having 24% more active listings still falls into the tolerable category because the number of pendings is higher today:
The 475 actives sounds like a boatload compared to the last three years, but instead of being scared off, buyers are just ignoring the 174 that have been on the market for more than 60 days.
The entry-level homes have kept, or exceeded their value from the frenzy. Generally speaking, it takes $2,000,000 or more to buy a decent house between La Jolla and Carlsbad today.
What about higher up?
It was at the peak of the frenzy in early 2022 that three homes sold in ‘The Ranch’ in Carlsbad, a tract of large homes on half-acre lots next to Olivenhain built by Centex in the early 2000s.
This one got the party started when it closed for $4,200,000, which was $1,000,000 over its list price:
https://www.compass.com/listing/3554-camino-arena-carlsbad-ca-92009/988499811730215929/
Then these two closed, and with three recent sales, it looked like it was a $4,000,000 neighborhood:
https://www.compass.com/listing/3603-camino-arena-carlsbad-ca-92009/1005085922918483761/
https://www.compass.com/listing/7915-corte-penca-carlsbad-ca-92009/1021982860260662241/
Here’s what has happened since (and the active listing was refreshed after 186 days):
It looks like $4,000,000 is still a stretch in today’s market.
While the July closing of $3,500,000 made it look like the comps were approaching $4 million again, then the same-sized house closes for $3,225,000 last week, thwarting the momentum.
Here’s how it looked:
At Encinitas Ranch, my record sale of $3,760,000 in November, 2021 is still holding up as the highest-priced sale of the tract homes. There was another sale of a home for the same price in 2022 that was 1,000sf larger than mine, but none higher since – this pending probably won’t get there either.
Lower rates may infuse more curiosity into the real estate market, but buyers will still be cautious now.
Get Good Help!
In what might be the biggest news of the year for us, daughter Kayla has joined the Compass family in New York City! Because she still has her California real estate license, she has also joined us at the Klinge Realty Group, making KRG bi-coastal!
A few other agents from her previous brokerage also went to Compass, making the transition a little easier, plus Robert Reffkin called her personally to welcome her and spent 3-4 minutes discussing her future!
The succession plan is for Kayla to run the NYC operation, and for Natalie to take over here.
We are thrilled to have Kayla back working with us!
If you or someone you know is thinking about buying or selling in Manhattan, let Kayla know!
Hat tip to just some guy!
Rick has some of the best insights on the real estate market – follow him at Twitter
Ringo at Humphrey’s with Steve Lukather (Toto) on guitar on stage right, and Hamish Stuart (Average White Band) and Colin Hay (Men at Work). Incredible show – they played all the hits, and it would be worth it to see any one of these guys play with their former band. Average White Band and Men at Work have future dates scheduled!
This is the only venue in San Diego that Ringo is willing to play, in spite of those who float up in their boats and kayaks to see a Beatle perform for free. I told Donna that Ringo will have something to say to the freeloaders, and sure enough, he did.
From MND:
We publish daily coverage of mortgage rate movement and have done so for nearly 20 years now. It’s a great place to quickly check in on rate trends and to get a sense of what’s true and what matters.
If you’d been checking in at any point in the past few days/weeks, you likely saw one of several attempts to remind readers that today’s Fed rate cut not only had absolutely no implication for lower mortgage rates, but indeed that mortgage rates have often moved higher on the same day that the Fed cuts.
That’s what happened today.
Interestingly enough, mortgage rates were already slightly higher than yesterday BEFORE the Fed announcement came out. The bonds that dictate mortgage rates are actually pointing to even higher rates tomorrow unless there’s a decent improvement overnight.
https://www.mortgagenewsdaily.com/markets/mortgage-rates-09182024
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It is smart for realtors to tell their buyers that lower rates in the future are unpredictable, and buying the right house at the right price is much more important. Also, any future rate improvement will be noticed by home sellers too, and they will want to push pricing – offsetting any benefit to buyers.
So the realtor industry should unite in our message to buyers about not waiting for…………..oh crap, here’s our head cheerleader telling buyers there will be six to eight rounds of further rate cuts!
Larry, Larry, Larry you’re supposed to be on our side!
The new rules don’t allow the MLS to publish on active listings how much buyer-agent commission is being offered by the seller and listing agent. But in a strange quirk, the CRMLS – the biggest MLS in California covering about half of the state – now requires that when marking a listing sold, the listing agents have to publish how much compensation was paid to the buyer-agent.
Since August 17th, there have been 173 NSDCC closed sales, and 54 of them published the buyer-agent compensation paid (CRMLS and SDAR are the competing associations/MLS companies in the county, and SDAR doesn’t require these stats from listing agents).
Of the 54 sales who published the amount paid, here is the breakdown:
2.5%: 25 (46%)
2.25%: 4 (7%)
2.0%: 20 (37%)
1.5%: 2 (4%)
1.0%: 1 (2%)
Zero: 1 (2%)
This is roughly the same mix that we’ve seen since April when I first started logging the commission rates being offered by the listing agents. We will follow this trend because buyers deserve to know the chances of them having to pay some or all of the commission to their buyer-agent.
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I have every intention of persuading the seller and listing agent to pay my buyer-agent fee.
In the event that we get stuck with an unreasonable seller/listing agent who insists on paying little or nothing – and the buyer doesn’t want to pay either – then I’m not going to hold you to it. I’m going to turn you over to the listing agent and bow out gracefully, if you don’t mind, because Donna doesn’t work for free (she plugs in once we have an accepted offer).
Why would I be willing to work for free for weeks or months? Because that risk has always been part of the buyer-agent environment – historically, we have always risked spending our time without any promise of getting paid. It’s the main reason why we deserve good compensation – it is risky. I will take my chances that I can get the seller and listing agent to come around, and/or have the buyer recognize and appreciate our services enough that I’ll get paid. If not, then fine.
Fair?
