Real Estate Market Update Dec 12, 2023: Rate Cuts, Ban on Corp Buyers, Black Friday & Good News for NAR

Mike Mills (00:00:08) - All my real estate wranglers out there. Welcome back to the Texas Real Estate and Finance Podcast. I'm your host, Mike Mills, a North Texas mortgage banker. And this is your real estate market update for the week of December the 12th. So what real estate market nuggets do we have on tap for today? Well, the market is expecting big rate cuts in 2024. I'll tell you the likelihood of that actually happening. Congress is trying to ban hedge funds from buying real estate. I'll give you details on a new bill making its way through Congress right now. Black Friday numbers are in and the headlines say it was another great Christmas spending spree. But was it might be another case of things being not quite what they seem. And finally, some possible good news for the real estate lawsuits being filed all over the country. At least one high level insider feels that the appeal has a good shot turning over the Missouri court ruling. So stay tuned to the end for that. But before we get started filling your brain with all the market knowledge to make you a real estate Jedi, I'd like to ask you a favor.

Mike Mills (00:00:57) - My little podcast is really starting to gain some steam and my numbers are bearing it out. Our downloads have grown 400% in the last six months, and we're adding more and more subscribers each and every day. So if you know someone that would benefit from the information, please share it with a friend. The bigger we get, the bigger the guess I can bring on board to give expert insight on what we need to do as real estate professionals to grow your business. Your support is our lifeblood and every listener matters, so please tell a friend it would make my little Baldheaded day. Now on to the update. So right now the market sentiment is the fed funds rate that currently stands at 5.5% will finish 2024 around 4%. That's a 1.5% decline between now and next Christmas. Barclays expected the fed will cut rates four times in 2024. ING forecast six rate cuts next year. Now, the market is often hedge fund managers, investment leaders and people who move markets, and often this can be based on wishful thinking.

Mike Mills (00:01:50) - It doesn't necessarily mean that's what's going to happen, but they feel this way because the fed has said recently that inflation is starting to moderate and heading into downward trajectory. And the fed has said that they're mostly concerned with the trajectory of inflation, not necessarily where it actually is, just that it's headed in the right direction. And since the fed raised rates at the quickest pace we've ever seen to 5.25% in less than two years, there's also some concern that deflation might become an issue. You see, deflation is where consumer and asset prices decrease over time and purchasing power increases. Essentially, you can buy more goods and services with the same amount of money you have today. This is the mirror image of inflation, which is the gradual increase of prices across the economy. And while deflation might seem like a good thing, it can often signal an impending recession. In hard economic times, when people feel prices are headed down, they typically delay purchases in in hopes that they can buy things for less at a later date.

Mike Mills (00:02:41) - But the lower spending leads to less income for producers, which can lead to unemployment and higher interest rates. But what are the economists and fed saying right now? Well, one fed governor feels like the trajectory of inflation is headed in the right direction, but he didn't hint that there's any desire to start cutting rates yet. And many, including Jerome Powell, has stated that they are still in a wait and see mode, which means that they're leaving themselves and out if inflation starts to tick up again, that they could still continue to raise rates if they choose. But they certainly have not hinted at any cuts yet. And they're meeting tomorrow. And they most certainly at this point, the expectation is they are not going to raise rates. The most likely scenario is that we stay where we're at right now on a pause, and no rate cuts or hikes anytime in the near future. And since the jobs reports have still been coming in relatively strong and wages are still trending upward, most economists feel like the rates will be here for a little while longer, at least until that trend starts to change.

Mike Mills (00:03:28) - So the long and the short of it is the Fed's not going to raise rates tomorrow. We'll probably be at higher rates into the late second or third quarter of next year, regardless of what the market thinks will happen. And unless there's a significant event that causes a big market downturn, then if there are rate cuts in 2024, they'll be only a couple of times and for a very nominal amount. But as far as real estate is concerned, the only thing keeping home prices continuing on their significant upward trend is high rates right now and some economic uncertainty. But you can bet as soon as rates come down, even to the 5 or 6% level, expect asset prices to jump up again. And speaking of home prices and lack of supply, last week, a Democratic House member and a Republican Senate member proposed a bill to Congress banning hedge funds from buying large swaths of single family homes all across the country. Now, on its face, many of us would all say that this is a good step in the right direction.

Mike Mills (00:04:16) - I've been clamoring for the last couple of years about the amount of homes that large corporate interests are buying up, driving up prices, and making homeownership less and less affordable. And with this piece of legislation, states, is that not only would hedge funds not be allowed to buy significant portfolio of homes, but any current portfolio exceeding some predetermined thresholds would be required to be sold off at a 10% a year clip over the next ten years, until they get below that determined allowable level. Look, I like that this is being discussed and looked at as an issue affecting housing affordability, but in reality, this is very unlikely to pass. Even if it's approved in the Senate, it would have a very strong opposition in the House, and even if passed, there would likely be vetoed by the Biden administration. So really, this is just mostly a couple of congressmen trying to make. Minds to get reelected because they're in districts where this is impacting home values more than others. In reality, worst case, right now, maybe about 3% of the US single single family homes are owned by corporations.

Mike Mills (00:05:10) - Um, you know, some parts of the country are obviously going to be higher than others. And really, the definition of what constitutes an institutional buyer in this bill is pretty vague, and which leaves room for possible mom and pop type investors to be limited as well. And even for me, more often than not, I prefer that the market dictate how home prices should flow and not the federal government, as they are usually pretty bad at regulating most things and just end up rigging the rules for their donors to get advantages over the little guy. So this story is really good at grabbing headlines, but has very little real possibility of being a reality. Last week we got Black Friday numbers in for this year, and according to the headlines, sales were up 7.5% to $9.8 billion from last year. However, there are a couple misleading numbers here, so the 7.5% increase was only for online sales, not sales in retail stores, which directly account for more than 80% of total sales. That means 20% of sales actually come from online sales, and some say it's actually even less than 20%.

Mike Mills (00:06:03) - And overall in-store sales were only up between 1 and 1.5% overall. So when you blend the online and in-store sales together, the dollar figure was only up about 2.5% from last year. And that's unadjusted for inflation. And right now the rate of inflation is between 3 to 4%, depending on what you're measuring. So that means Black Friday's actual volume was down this year, not up when adjusted for inflation. It's just another example of corporate media pushing and narrative that the economy's continuing to boom, when really it's kind of slowing down. And the inflation numbers that came out today showed that the inflation is not continuing to rise, but is also not coming down at the same clip either. And overall consumer spending is slowing to the lowest rate we've seen in almost eight months. But good news is, is that gas prices keep going down. All right now is down to $68 a barrel, which means most likely will see gas below $3 a gallon for the first time in quite a while. That's good news for all you realtors out there driving around town.

Mike Mills (00:06:54) - And finally, let's talk about the topic that's on every agent's mind out there, which is the commission lawsuits threatening to change the way homes are bought and sold here in the US. So last week, another lawsuit was filed in Georgia. Same story, different state antitrust force commissions, blah, blah, blah. And at this point, there's something like 10 to 15 of these lawsuits currently filed. And the number keeps growing every day. But there was some possible good news in all of this lawsuit information last week. So I heard an interview on the National Real Estate Post this last week, which is a YouTube channel devoted to the housing market. If you haven't checked it out, you really should the National Real Estate Post. Just look it up on YouTube. It's right there. And they interviewed David Stevens. He's a 35 year real estate professional who's worked for Freddie Mac, Wells Fargo, HUD and the Mortgage Bankers Association. Now, during the interview, David stated that he had been called as an expert witness for the defendant in a few cases already, including the main sitter.

Mike Mills (00:07:43) - Burnett case and David's take on this is that the appeals process for Nar and the defendants in this case might actually work out better than people in the industry expect right now. He stated that because the case was a jury trial, the judgment from the jury was based much more on emotion than actual evidence and facts. In fact, he said that after two months of court hearings, the jury deliberated for less than two hours and did not request to review any of the evidence during the deliberation, essentially reaching the verdict purely on emotion and feeling. And there were little to no actual homeowners on the jury who had actually been through the process of buying a home and had some experience with what it takes to buy and sell real estate these days. And he stated that when you go through the appeals process, there is no jury involved. It's only judges and attorneys. And the appeal itself is much more based on the evidence and facts and very little emotion. So many of the attorneys involved have a pretty good feeling of confidence right now that they may actually be successful in the appeals process, but it could take up to two years.

Mike Mills (00:08:41) - And until that happens, the market is very much up in the air on how to move forward, but it's very likely that lawsuits will continue to be filed until a precedent is set. The big hope is that the Department of Justice, at some point, will step in and issue some sort of ruling on who can pay for what in regards to commissions, in order to keep ambulance chasers from continuing to come after brokers and agents all over the country. Look, Realtors are not a cabal of conspirators trying to rob homeowners of their money. Most of them are independent contractors, making an average of about $45,000 a year just trying to support their family. No different than most hard working Americans all across the country. Right now, we're just at the center of controversy between lawyers trying to earn a quick buck and one of the last big industries in the country not controlled by large corporate interests. The big thing you need to do as an agent right now is understand what's happening and be ready to answer questions when your clients ask.

Mike Mills (00:09:32) - And most likely things are going to change. But what that change is and how it impacts your business is anybody's guess right now. And as far as Mr. Stevens is concerned, it's business as usual. He advises that everybody stay calm and stay the course until all of this gets hashed out. Look, I hope he's right. The systems worked really well for a long time, and any significant changes imposed more often than not will have a negative impact on the consumer with unintended consequences, because we've seen that happen too many times in two. Any instances over and over again. So be sure to educate yourself on what's going on. Make sure you know your value proposition to present to your clients if questions come up, and just keep on keeping on. Well guys, that's all for today. Hopefully this was a quick one. I really value your time and I want to make sure I get all this information to you in the most efficient way possible. I hope I was able to add some nuggets of knowledge to your real estate repertoire today.

Mike Mills (00:10:21) - My goal is to keep a lookout for news that affects our industry, so you can be prepared to serve your clients from an informed perspective, to guide them along the best path to serve their needs and their family. I appreciate each and every one of you out there, and I'm so grateful for the time you spend here with me each week. I'll be back on Friday with Landon Day, a local photographer here in North Texas, discussing how to get the most out of your listing photography and how to brand yourself in the best light for 2024. Until then, be great humans. Keep fighting the good fight. Just keep swimming.