Real Estate Market Update Nov 28, 2023: Black Friday, Housing Crash, Lawsuits and Productivity Hack

Mike Mills (00:00:08) - Howdy there, you.

Mike Mills (00:00:09) - Turkey stuff. Real estate pros. It's your bald head. Mortgage banker Mike Mills, coming to you from the Lone Star State with another episode of the Texas Real Estate and Finance podcast. I hope y'all all had a fantastic holiday filled with more food and family than you could possibly handle. But guess what? It's time to get back to the hustle. And if you're not excited about it, well, you might be in the wrong line of work. But hey, if you're tuning in, I know you're as pumped as I am to dive into the wild world of real estate and keep honing your skills each and every day. Now, I want to be clear on something. I really try to keep this podcast under 20 to 30 minutes, but hey, I do love the sound of my own voice, so sometimes I go a tad over. But here's the deal I'll work on keeping it shorter if you promise to keep coming back for more each week. Sound good? All right, let's see if I can stick to my time goal this time around.

Mike Mills (00:00:53) - Okay, so what's on the menu for today's episode, you might ask? Well, we've got some really juicy stuff lined up. See what I did there? Food. Thanksgiving. Juicy. So first we're going to dive into Black Friday numbers. The economy might seem like it's sailing along smoothly, but is it really? We'll dissect the data and see if there's a hidden storm cloud on the horizon. Then I've got the scoop on the latest new home sales data. Is the much talked about housing crash finally knocking on our doors? We'll analyze the numbers and see what they reveal about the future of home prices. But wait, there's more. We'll look at some banking issues that could potentially unleash a black swan event, plunging us into the recession that we seem to be teetering on lately. Small banks are struggling, and I'll show you why you should care. And of course, I'll bring you up to speed on all the lawsuits that are raining down on realtors and brokerages across the country. Changes might be coming, my friends, so stay informed about how it could affect your paycheck.

Mike Mills (00:01:43) - And last but not least, I've got a nifty productivity hack to help you plan your business and brace yourself for whatever curveballs 2024 might throw your way. Stick around to the end. If you want to start the new year off with a bang. But hey, before we kick things off, if you find this podcast valuable for your business and enjoy the banter I bring each week, do me a solid hit that subscribe button on your podcast platform, or share it with a friend who could use some real estate insights. Look, likes, shares, subscriptions, and especially reviews all helps me keep the content flowing. So help a bald guy out and show some love. Now on with the show. So let's start with some news that's not necessarily real estate related, but it's going to impact your pocketbook either way, though. Recently, Saudi Arabia asked OPEC to reduce oil production again since prices are down 20% in two months. Now, the OPEC meeting is happening on Thursday to make this decision. You see, they're meeting this week to try to adjust the production level on what they intend to put out.

Mike Mills (00:02:35) - But there are some of the let's call it less well off countries and part of OPEC that are refusing to reduce production due to turmoil that's currently happening in the Middle East. You see, they're concerned about conflicts erupting in the demand, spiking and not being able to meet their own needs as a country. This is what's actually been driving the price of gas down. But if OPEC decides to cut production, you would expect over the next couple of months that the price of gas would go up again. So keep your eye on what OPEC decides to reach. On Thursday, and it'll give you an indication of where gas prices are headed when you're driving around showing clients. It was reported yesterday that Black Friday shopping was up to a record $9.8 billion. This is up 7.5% from last year. But this is dollars, not products. And so far, with overall inflation this year being up almost 4%, you can take 4% right off that seven and a half right off the top. And that's on everything because some things have gone down like gas.

Mike Mills (00:03:27) - If you've seen recently the CPI numbers reflected over the last couple of months they've been coming down. But that's because the price of gas has been coming down. But the prices of retail goods, food and all things that you find in the store that would be purchased for things like Black Friday have all been significantly higher than what we see at the 4% inflation rate. So you're seeing some things that are up five, ten, 15%. So just because the dollar amount is grown and is higher than it was last year doesn't necessarily mean that people can afford more stuff. It just means that things are more expensive. And to prove that point, the buy now, pay later spending is up 20% compared to last year on Black Friday. Since overall savings for Americans went from 2 trillion to 0, Americans are relying on debt more than ever. You see, Black Friday may offer 20% off the pricing or 30% off the regular retail pricing. But if you're charging on a credit card where you're paying 20 to 30% interest, are you really getting that good of a deal? And we know people are doing this because right now, total credit card debt is at a record $1.1 trillion since the pandemic.

Mike Mills (00:04:23) - Now moving on to housing news. So since the start of pandemic, California has lost almost 350,000 people and Texas has added more than 340,000 people. Florida picked up 450,000 people and New York has lost 300,000. So the first thing I take from this is obviously people don't like state income taxes. The second thing I take from this is as a real estate professional, you need to understand that people are still moving to Texas and they're coming from places like California and New York where they have a lot of cash. And so you're seeing a lot of cash buyers move into our area because of the migration patterns from other states. So what this means is that you're going to continue to see home prices. Elevated, so these prices will stay high. There won't be this crash, at least not in the state of Texas, because we continually have people moving in. Now, what this is going to mean for our future politics in the state of Texas? I can't say, but something to keep an eye on for sure.

Mike Mills (00:05:13) - Speaking of, California is moving here and making everything more expensive. The average monthly mortgage payment has doubled since January of 2021, going from $1,500 a month to $3,000 a month. Now, obviously, a big piece of this is that interest rates have gone up at the fastest rate we have ever seen, but don't expect those interest rates to come down at the same rate that they went up. We're probably going to be in this high interest rate environment for a little while until we see a deep recession kick in. Now, for all those housing crash fans out there that have been waiting for the market to adjust significantly so those homes become affordable, you might have got some good news today. Today they released the data for new home sales. Now, this isn't existing homes or current homes that are built. These are new homes being constructed and being sold. And the headlines read that the median home price that was selling for 4.96 last year at this same time, is now around 409. Okay, so that's a $90,000 drop down 18% in one year.

Mike Mills (00:06:09) - That's the biggest decline year over year since 1965. So the crash is here, right? It's finally happening. The prices are down 18%. Well the trick on this is that the word you need to pay attention to is the word median. This isn't average. This isn't home value. This is the median price. So this is the middle price of homes that are sold. And the thing with median prices, it all depends on the mix of homes being sold. And to prove my point, right now, homes that are selling from 200 to $500,000 make up almost 70% of the total mix of homes sold, while homes selling over $500,000 just make up around 30% of that number. Which is why you see this big shift you see, last year at this time, it was almost 5050 between those two price points. So the median price really makes a difference on what homes are being sold. It's the mix of homes, not necessarily what the cost or an average home value is. And remember this is new homes.

Mike Mills (00:07:01) - This isn't all homes. So this just makes up one small segment of the market. So that's why you don't see a big crash happening overall, because the decline in the price is strictly due to the number of homes being sold at certain price ranges, not the value of homes themselves. And a big thing playing into this right now is that 54% of all these new home buyers are actually first time home buyers, which also lends itself to push towards the lower price ranges because more first time home buyers are getting into the market now. Because they can, because there isn't so much competition like there was before, and they're typically going to be purchasing homes on the lower scale of price points. And with all the incentives that new builders are often offering, they may be selling a home for 430. But if they're taking 10 or 15 or $20,000 off either the price or they're offering incentives, which directly goes into what the price is considered at, then that is also a reflection of why there's such a drop. But even with mortgage demand at its lowest levels in three decades, overall home prices are still really near record highs.

Mike Mills (00:07:58) - And if you're in the market for a new house, I strongly recommend that you get a home inspection. Because even though new homes are quote unquote new, these homes are also the quality of construction isn't as great as it used to be. The issue is, is that the cost of builds are going up, and they're trying to keep prices still somewhat affordable. They're still trying to maintain their profit margins, which is incredibly important to their investors to make sure that they're still making the same amount of money on these homes that they're selling, if not more, and the regulations that they're having to jump through in the whoops into different depending on the municipality in the city and the state are also causing issues with cost, which then causes them to pull back in other areas like quality of goods used for construction. So make sure you get an inspection, because just because it's a new home doesn't mean it's necessarily a quality home. And right now, the only thing that could trigger a sharp decline in home prices overall is if we see a large wave of unemployment and people can't afford to pay their bills.

Mike Mills (00:08:52) - But look, a unique function of the current market is, at least in my opinion. You'll see when you have spikes of unemployment, it often impacts people on the lower end of the socio economic scale more than those on the higher end, because if you have a good job that allowed you to buy an overpriced home at a super low rate, a slight spike in unemployment overall is not likely going to impact you or make you stops paying your bills because you'll find another job, or you'll figure out what you need to do in order to make sure that you don't lose your house because you have a ton of equity in it, and you don't get rid of that low mortgage. So even a strong spike in unemployment isn't necessarily going to mean a flood of inventory on the market, either. And a small spike probably won't affect it much at all. And I say this because right now, 63% of all outstanding mortgages on the market right now were issued after 2018. And this is primarily because everybody decided to refinance and lower their rate at that time, which means that not only do they have an incredibly low rate, but the appreciation that occurred during that period was also showing that they have an incredible amount of equity, so they don't want to lose their equity and they don't want to lose their rate.

Mike Mills (00:09:55) - So the odds of them defaulting on their mortgage, unless they're just absolute. Dire straits is very low, and even on top of that, a record 40% of US homes don't even currently have a mortgage, and 35% of all the transactions on housing that are occurring right now are cash. This is also a record. So people have a lot of equity. They have low interest rates. A lot of people don't even have a mortgage at all and are paying for homes with cash. So again, this goes back to the issue that we all have, which is a supply issue. So you're not going to see the market crash unless there's a substantial amount of supply that hits the market. And currently on existing homes, at least there is not a wave of of homes that are coming because there's not going to be foreclosures, and builders just aren't building at a pace that they need to in order to make housing come down. Because until there's a glut of supply, you're not going to see the price of homes fall dramatically.

Mike Mills (00:10:45) - And as long as these rates stay high, then that's going to put investors in a stronger position with cash offers to get greater value on homes right now. And speaking of investors and big money, the usage of the Fed's emergency funding facility just hit a record high of $114 million. Now, this is the fund that fed set up for banks that have liquidity issues so that they can borrow money to meet their FDIC reserve requirements of 10%. Now, this fund is only for banks. An average consumer cannot access this money. Now, these reserve requirements state that for every dollar that a bank lends out, it has to hold $0.10 in reserves. And the issue that's happening right now is that smaller banks are losing deposits and they're experiencing large outflows, which is causing their FDIC requirements to be put to the test because they don't have enough cash in reserve. So the only way that they can get this cash in order to have it there is by borrowing money. And the fed set up this emergency fund for these banks struggling so we wouldn't have a large banking collapse.

Mike Mills (00:11:42) - This was set up earlier this year when the Silicon Valley bank crisis happened, when they were concerned about that entire bank closing down. That's a whole other topic for another day. And if you go back to some of my previous episodes, I kind of went into that a little bit greater in depth. But that facility was set up for smaller banks to be able to borrow money so they could still meet their reserve requirements without fear of falling apart. This is just a bank's version of of fed stimulus. I mean, the fed is still stimulating the market because they're still putting money out there. They're just putting it in banks hands instead of consumers hands. Oh, and by the way, if you want to borrow this money and you're a large bank, you get to borrow it at a lower rate than what the Fed's charging on the normal fed funds rate. I think right now it's around 4%. That's what I remember seeing it when I did the story last time. And I doubt that they've raised it.

Mike Mills (00:12:24) - But when I did some searching to try to find it, I didn't spend a ton of time researching this, but it was very, very hard to find what the actual borrowing rate was for these banks in this fed emergency fund that has set up. And I think that's partially due because they don't want you to know that they're paying less than what everybody else is paying to borrow right now. And the problem is, is that more and more of these small regional banks are tapping into this. And since small banks hold 70% of commercial real estate loans right now, which is also struggling to make ends meet because they're losing tenants left and right, this makes this entire problem much, much worse. And this program is set to expire in March of 2024. That's less than four months away. And as it stands, the fed, nor the federal government, nor any of the banks have a real solution in what to do if this problem continues to get worse and this program expires, I'm sure they'll probably just extend it.

Mike Mills (00:13:14) - But every single month, this fund grows more and more and more because more and more banks are tapping into it in order to meet their reserve requirements, which is a really big concern for anybody paying attention. This week alone, small banks saw outflows and deposits of $3.3 billion. And ever since, the fed started raising rates, money market funds, which actually pay you interest on your deposits, have seen a $1 trillion growth. To me, this is just a bigger indication that the economy is not nearly as strong as we keep hearing about in corporate media. Look, I know personally that the economy's not doing really good right now because just in the last 30 days, we've seen almost a 3% shift in mortgage backed security prices. And that's the reason that you've seen interest rates for mortgages go down so much in the last 30 days, because all of this money is starting to shift in the other direction. Investors on the whole are starting to feel nervous about where the economy is and where it's headed, at least in the short term, which is why you're seeing these outflows grow as high as they have.

Mike Mills (00:14:09) - And that's also why you're starting to see mortgage rates come down, which you'll probably continue to see as we move through the rest of the winter. So Black Friday may have hit record numbers, but it's mostly on inflation and home prices may be coming down, but that's mostly because of the mix of homes. And so what you're starting to see is you're starting to see small cracks in the economy. And this isn't good or bad, it's just what it is. And you have to be prepared for what's coming your way. So that way you'll be well equipped to deal with the market that's headed into 2024. All right, speaking of 2024 and change, let's look at some of these real estate lawsuits that have started to really kind of come down the pipe ever since the Sitz or Burnett case was settled just a couple of weeks ago. So we had the Burnett case that was ruled on a few weeks back for $1.78 billion to the plaintiffs. Currently, there's a case called a molar case, Mo, la, that was filed in 2019.

Mike Mills (00:14:59) - Teen that's moving through appeals right now. Against Remax, Keller Williams and Home Services, this is being filed against them by the plaintiffs in 20 different markets. There's currently an antitrust case in Texas where a developer and a builder are suing Nar and other brokerages, but also Metro Texas, Austin Board of Realtors and Houston Board of Realtors for antitrust as well. Now you'll notice the theme through all of these. I'm not going to name out the brokers every single time, but all of these are being all these suits are being filed against realtors and brokers and MLS. That's where the focus of all this is. There's a lawsuit called the March lawsuit in Manhattan that's suing the New York Board of Realtors, as well as several other defendants. There's a case called the Gibson case that's brought, brought by the same attorney that did the Burnette case, but it's a national lawsuit instead of just in Missouri against Nar and several other brokers. There's been two lawsuits filed in Illinois called Baton one and Baton two. Now, the Bat and two case was filed by home buyers rather than home sellers.

Mike Mills (00:15:55) - Which to me is kind of ironic since if all of this plays out the way it seems to, the buyers are going to be impacted and end up paying more than sellers. So it seems odd that buyers tend to be the ones or that buyers are involved in this particular lawsuit, saying that they got screwed in the process. And right now, Gary Keller of Keller Williams is being accused of embezzlement in an updated racketeering lawsuit that was filed against him a year ago. Now, this is coming from a former agent who had a franchise, and that's forcing them. And they claim that they were forcing them to pay for certain services that they just didn't need. Now, there's a whole lot to this one as well. And some of this just seems like it might be, you know, somebody that's going after Gary Keller or Keller Williams just just on the tails of all these other lawsuits. But it's just one other thing that's in the media that's piling on top of realtors right now. See, just as a reminder of what everybody's fighting against, this antitrust thing that's requiring basically that's saying MLS and Na are requiring sellers to pay buyers agents on behalf of the buyers as part of the requirement of being of listing your house with a realtor associated with Nar, any of these MLS system.

Mike Mills (00:16:58) - But the idea behind this, in case you forgot, was that when you buy a home as a buyer, you don't have a lot of money, or you don't have as much money because you're trying to come up with a down payment, you're trying to come up with closing costs. ET cetera. So into the system was built where the seller who typically is sitting on equity not all the time, but typically is sitting on equity, has the ability to pay out to the agents that did the transaction on the buyer and sellers behalf because they have access to more funds and it's still their money. But at the end of the day, when they get a check, it's not like they're having a stroke, a check. It's coming out of equity that they have so they don't feel the pain as much. And not that that's fair or not fair, but where the fair comes into play is that when that seller who sold their home and paid for that buyer's agent now goes around and tries to buy a house, well, now the seller on that house is going to pay their agent.

Mike Mills (00:17:47) - So the idea is that as a home buyer, you pay an agent one time when you sell, but not when you buy. So the idea is that over time, this reciprocal relationship benefits everybody. Overall. Now is their question some time about how much an agent should be paid or compensated for their work. Absolutely. And these are all things that are going to be discussed over the next several months. But the idea was that always that it was a fair and balanced system because the buyer was paid, or the buyer's agent was paid and the seller's agent was paid, and it worked out for both the buyer and the seller because of their financial situations, depending on if they own the home or if they were trying to buy one. And now all of these lawsuits are coming along wanting to upend this entire system. Now, whether you agree with it or don't, what you have to understand is that this will change things. If you're currently talking to your broker or talking to other agents and everybody's telling you, nah, don't worry about it.

Mike Mills (00:18:38) - It's just going to be business as usual. Well, I'm here to tell you that that is not going to be the case now, does it? Do I hope it happens that way? I do, but I really do not believe that it does, that we're just going to keep humming along as we have forever. You just saw I listed out 5 to 6 lawsuits that are being filed directly against realtors and brokers. And if you don't think the results of these lawsuits are going to change how your commission is structured and paid and you've got your head stuck under a rock somewhere and you really need to pull it out. I've talked about this on many occasions on this podcast, and I will continue to talk about it because it continues to affect us. But the main message that I want to get across to anybody listening to this is that these lawsuits are going to change how buyer and seller relationships are handled, and if you don't prepare for that and make sure that you're ready for 2024 to adjust, either how much money you're going to make, whether you're going to represent buyers or sellers, what percentage of your commission should be paid out, or what your value proposition is, what you bring to the transaction, and be able to eloquently and clearly explain that to your buyers and sellers, then you are going to be behind the eight ball.

Mike Mills (00:19:40) - You have to be prepared for this, or at least at the very least, you have to prepare for the worst and hope for the best. I hope that it continues to be exactly what it's been for the last 100 years, and nothing changed. But if that's what you really think is going to happen, then I don't know that you're going to be in real estate at the end of 2024, and that's something that you really need to consider. And. Right now, you've got about 30 to 60 days before the market really starts to ramp up and you see if rates start coming down. The demand for homes are going to start going up, which means more buyers and more sellers are going to be entering the market. And when that happens, there's going to be more questions, there's going to be more expected of you. And so if you're not prepared with what that world is going to look like, and if you haven't planned it out accordingly, then you are going to be behind everyone else and may not be selling real estate for the rest of the year.

Mike Mills (00:20:25) - Well, all right, I can really be a Debbie Downer sometimes. I'm not trying to say the world's. I'm not like Chicken Little saying the world's falling, but I am telling you that you have to see the train coming down the tracks and you have to prepare. And part of preparation is going to be planning for 2024. So in the spirit of helping you plan for the changes that are coming, I want to give you a productivity hack that I think most that most people can use that will help you get the most out of your day and your week in 2024. Now, I'm not presenting any new information and saying that you really need to try to live by your calendar. I don't mean that your calendar is the end all, be all, and you should do nothing that's not on your calendar. I'm not saying that everything has to be flexible. Everything has to have a little slack in it. But what I am saying, what I am saying, is that you need to. You need to plan your day and your week and your month to give you the best chance for success.

Mike Mills (00:21:14) - And I really think planning out everything and putting it down on paper and making sure that there's somewhere where you can have all of your thoughts and all of your schedule in one place, and be able to easily reference. That is incredibly important. There was a quote that I heard a couple of weeks ago that I just love, and I've said it a thousand times to a million people over the last couple of weeks, is your brain is for having ideas. It's not for holding them. What that means is that when thoughts and ideas pop into your head, I got to take my kids to practice tomorrow. I got to make sure that I follow up with the teacher on that grade. I got to make sure that I talked to my husband or wife about calling the repairman to make sure they come look at the toilet, whatever it is, all that stuff, when you're driving down the road and you're thinking of this and thinking of that and thinking of this, you have to have a place to put this.

Mike Mills (00:21:55) - And I'll get into in future episodes about the best method for keeping some of these ideas categorized. But in the meantime, you have to be able to plan out your day so you can address these issues that pop up. Because if you don't have a plan for your day, your day will plan it for you whether you like it or not. And what this does is it causes stress. It causes anxiety because there's all of this stuff that's coming at you constantly, and you just feel like you're constantly operating from behind. And I'm not saying that you're going to be able to wipe that out just by managing your calendar well, but what I am saying is you're going to be able to mitigate a lot of it, and if you can mitigate some of it, it'll take that stress away and clear up some brain space so you can have thoughts about greater things other than what you're doing five minutes from now, because this is just a vicious cycle that keeps going. You don't plan, then things happen, then you fall behind, and then because you're behind, you have to try to catch up.

Mike Mills (00:22:41) - And because you're having to catch up, you're not being able to plan for what you wanted to do before. And you just keep going and going and going, and you never get out of that cycle. And you're constantly putting out fires in your day, and the people around you are constantly dictating what you do on a day to day basis. And keeping good track of your calendar is the best way to keep this stuff under control. Because when your day's laid out for you, your stress and anxiety will diminish and your thoughts will be clearer. And again, there's always going to be days and weeks where things don't go according to plan and you have to adjust on the fly. That's always going to happen no matter how much you try to schedule yourself. But all that means is that you just need to leave a little bit of slack in your days to account for it. And my best suggestion to implement a way for you to really start using your calendar is coming up with something called your Ideal week.

Mike Mills (00:23:23) - Now I use Google Calendar and I use it for a million reasons. Online access, a million different functions inside of it, like tasks and color coding and things like that. But whatever you're comfortable with, use it. But use Google if you can because it's easier. And then what you want to do is imagine that you had nothing that was going to get in your way, and you could create your ideal week. So you want to plan things like what time do you want to choose to wake up each day? What do you want to dedicate to do in the morning? Do you want to read? Do you want to exercise? Do you want to write? What do you want to do first thing when you wake up? When your brain is fresh? When do you have to head off to work? When you get home from work, do your kids have practices during the week? Or maybe you have a weekly date night with your spouse or partner that you want to make sure you want to try to hit every single week.

Mike Mills (00:24:00) - These are the big things that happen to you, that are reoccurring activities that you're always going to have to take care of, but you don't want to schedule every single second of every single day. You have to leave slack in your schedule. You just want to block times for big events, because when things do happen, which they will, then you can shuffle and move those things around, but continue to keep them a priority. Because if you had to skip date night this week because you had something that came up that you had to go out with your in-laws, or you had some friends that wanted to come through, but that's a priority to you. Then you want to make sure it stays on your calendar, because it's going to remind you to make sure that you do that next week, because you missed out on the one from this week. And this is another thing Google is great about. You can move stuff around and shift it easily without having to go in and type it out or rearrange it.

Mike Mills (00:24:41) - You can just drag and drop, but this ideal week concept is ultimately going to allow you to begin to get a better control over your time and schedule so you can make time for planning and marketing your business like you know you need to, but you never actually do. So this week, sit down and create your ideal week. Be. Because either you will dictate your schedule or something, or someone else will. So be sure that you're the one controlling your days and your week. Well, folks, that's a wrap for this week's episode of the Texas Real Estate and Finance Podcast. I hope you enjoyed the ride through the latest world of real estate and finance. But guess what? We've got some exciting stuff lined up for you in the coming weeks. Next week I'm diving head first into the world of homes. We'll do a deep dive and give you a lowdown on what they're offering. Is this something you should keep your eye on? Well, you'll have to tune in and find out. Something else special is on the horizon.

Mike Mills (00:25:29) - Two I'm actually starting a series with my daughter on personal finance. Yep, you heard that right. We're taking you along our journey as we get her ready to head off to college. In a few years, we'll be tackling topics like bank accounts, investment accounts, credit cards, finding scholarships, budgeting, and many more things. So if you've got a kiddo and you want to learn the ropes, join us on this adventure. I'm going to be learning just like she is. And now, before I sign off, remember your feedback means the world to me. Hit that subscribe button, share with your pals or drop a review. It goes a long way in keeping this podcast going strong. Thanks for joining me today and I'll catch you all in the next episode. Until then, be a good human. Keep your boots on the ground and your eyes on the market.