The Fed today would do well to consider the wisdom of Wayne Gretzky.

Mortgage rates fell on the day Silicon Valley Bank went bankrupt. In times of panic, financial market investors seek out the safest asset. Nothing is more secure than U.S. government bonds; they will be paid. There are, however, interest rate risks that all banks should properly manage or suffer the fate of SVB.

Government-guaranteed assets are next, so the mortgage investors of VA, FHA and most conforming mortgages can be assured they will get their money back. The average 30-year rate, therefore, fell from 7% to 6.5% in the course of two days. On a typical-size mortgage, the monthly payment fell by roughly $100.

More declines could happen. Stubbornly high consumer price inflation is decelerating, if slowly. It was running at 9% in mid-2022 before showing some improvement to 6% in February’s data. It needs to get to 2% before the Fed can declare victory, which is still two years away, but getting inflation to around 3% to 4% looks likely by year’s end. Despite the frustration of high egg prices, it’s housing costs that matter: Eggs are weighted at 0.2% of a typical household budget, while shelter costs represent 34.4%. And while rental costs are still accelerating at a rate of 8.8% annually, various private sector apartment data show actual rent declines. Also, construction of apartment units is at a 40-year high. More vacant units will soon appear, decelerating rents, possibly sharply.

Given rent projections and the lagging impact of Fed actions, the Fed needs to follow the maxim of hockey great Wayne Gretzky: Go where the puck will be and not where it is. The Fed should stop raising interest rates.

One significant risk remains. Are U.S. bonds the safest asset? The national debt level is making a hockey stick–shaped upturn to $30 trillion. A default is out of the question. But higher borrowing costs for all, including the government, could occur if Washington cannot get its act together.

Halting First Steps

First-time buyers made up just 27% of home sales in February 2023, down from 31% in January 2023 and 29% in February 2022. The first-timer share of the market was the lowest in 2022 since the National Association of REALTORS® began tracking the data.

©National Association of REALTORS®
Reprinted with permission

As rental rates slow, owners may consider returning inventory to the market.

Real estate investors have done well. Rents have risen and home price appreciation has been quite exceptional. In the past three years, the typical rental rate and typical home price have soared by 16.4% and 35.5%, respectively. Over the past five years, those figures are 24.9% and 50.8%. These returns were occurring at a time of low-cost financing.

Now it’s time for investors to sell. Home prices have already retreated in some markets—especially in the west, where the median price is 8% lower than a year ago.

There are 44 million renter households: Half live in midsized to large apartment buildings, while the other half rent single-family, duplex, triplex or quadplex units. Although apartments are not necessarily as competitive as single-family rental units, a 40-year high in multifamily construction means many units will be hitting the market in the upcoming months and into next year. Rent growth has already turned the corner from acceleration to deceleration, still rising in most markets but at a slower pace. Looking at single-family construction, builders are still underproducing compared to the historical average, but new-home sales are back to pre-COVID levels. Home builders are making profits, stock prices for publicly listed construction companies have risen by around 50% in the past year, and inventory of new homes is plentiful.

That’s not the case for existing homes. The latest inventory of 1 million is a historic low, and that’s hindering existing-home sales. Multiple offers are still happening on mid-priced homes. We need 50% growth in listings to reach pre-pandemic 2019 levels. We need 100% growth to reach an adequate supply. This is where investors come in—or rather, come out. The National Association of REALTORS® is calling for a federal incentive to help bring needed inventory to the market: temporary capital gains relief for investors who sell to a first-time buyer or first-generation buyer.

Days on Market Trend Down

Properties remained on the market for a median of 18 days in May, down from 22 days in April but up from 16 days in May 2022. Seventy-four percent of homes sold in May were on the market for less than a month.

Affordability and Supply

A new NAR and realtor.com® study estimates how many homes are “missing” from the market by income level. The largest shortage of homes is in the price range that middle-income buyers can afford.

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Reprinted with permission

Contract signings picked up the pace last month, and home buyers are increasingly facing multiple offer situations. NAR releases its housing forecast for the remainder of the year and 2024.

Pending home sales rose slightly in June, and the latest indicators are showing a housing market on the mend. Median existing-home sales prices in June soared to their second highest on record in the last two decades, and more buyers are facing multiple offer situations once again, the latest reports from the National Association of REALTORS® shows. NAR’s Pending Home Sales Index—a forward-looking indicator of home sales based on contract signings—rose 0.3% in June, the first increase in four months.

“The recovery has not taken place, but the housing recession is over,” says Lawrence Yun, NAR’s chief economist. “The presence of multiple offers implies that housing demand is not being satisfied due to a lack of supply. Homebuilders are ramping up production and hiring workers.” 

Housing inventories remain at historical lows, down 13.6% from even last year’s low levels. “There are simply not enough homes for sale,” Yun said in a recent report. Seventy-six percent of existing homes sold in June were on the market for less than a month, NAR’s data shows.

Home buyers are faced with limited choices, higher home prices and higher mortgage rates. But they may find some relief soon: Mortgage rate increases may be mostly over, and that would bode well for home-buying, Yun says. 

“With consumer price inflation calming close to the Federal Reserve’s desired conditions, mortgage rates look to have topped out,” Yun says. “Given the ongoing job additions, any meaningful decline in mortgage rates could lead to a rush of buyers later in the year and into the next.”

NAR forecasts that the 30-year fixed-rate mortgage could reach 6.4% by the end of the year, followed by 6% in 2024. Over recent weeks, mortgage rates have been nearing 7%, far from their ultra-low 2% or 3% averages just over a year ago. 

Home Sales Outlook

NAR released its latest forecast showing what they believe will be the trajectory of the market over the coming months: 

• Existing-home sales: NAR predicts existing-home sales to fall 12.9% in 2023 compared to 2022, and then climb by 15.5% in 2024.  
• Prices: National median existing-home prices are expected to remain mostly steady, likely ending this year just 0.4% down compared to 2022, reaching $384,900 for 2023. Home prices are then expected to rebound by 2.6% in 2024 to $395,000, NAR predicts. The West—the nation’s priciest region—likely will see prices reduced more, while more affordable regions, like the Midwest, are forecasted to post moderate increases, NAR’s report says. 
• New-home sales: Sales of newly constructed homes are forecasted to be a bright spot for home sales, as more buyers search for greater inventory options. New-home sales are expected to rise by 12.3% in 2023, and by another 13.9% in 2024, NAR predicts. The national median new-home price is expected to fall by 1.9% this year, to $449,100, before jumping by 4.2% the following year to $468,000.  
• Housing construction: Economists have been calling on the new-home market to make up for the supply deficits in the real estate market. But NAR is forecasting that housing starts will fall 5.2% in 2023 compared to 2022 (reaching 1.47 million). Housing starts are expected to ramp up in 2024, however, rising 5.4% to 1.55 million. 

“It is critical to expand supply as much as possible to widen access to home buying for more Americans,” Yun says. “Home prices will be influenced by how much inventory is brought to market. Increased homebuilding will tame price growth, while limited construction will lead to home price appreciation outpacing income growth.”

Regional Breakdown on Contract Signings

Meanwhile, the latest housing market conditions show a market much slower than last year’s brisk pandemic-fueled pace. Overall, pending home sales were down in June by 15.6% compared to last year, NAR’s data shows. But market performance did vary regionally. Month over month, contract signings increased in the Northeast and Midwest, while falling in the South and West. Nevertheless, all four major regions of the U.S. posted year-over-year decreases in transactions in June. 

©National Association of REALTORS®
Reprinted with permission

Homebuilders are providing options buyers can’t find in the existing-home sales market.

Newly built homes account for a small share of the home sales market, generally around 10%. But builders have grown that percentage this year and will make further gains in 2024. Even with higher mortgage rates, new-home sales are rising because builders are bringing more inventory onto the market than they did before the COVID-19 pandemic. By contrast, the market for existing homes is gummed up by lack of inventory, which is about half of what it was in 2019. After two consecutive years of near-20% declines, existing-home sales will recover next year with a baseline gain of 10% to 15%. If, somehow, more inventory bursts forth, a surprisingly positive gain of 25% to 30% is a distinct possibility. Lack of supply is behind ongoing multiple-offer scenarios on moderate- to mid-priced homes and attests to the importance of inventory in getting the market moving.

Builders can add inventory by constructing homes. Boosting existing- home inventory requires owners to give up the low mortgage rates they secured a couple of years ago. Rates in the 2.5% to 3% range may be too good for some owners to surrender. But consider the life-changing events that took place during the past two years: 3 million marriages, 1.5 million divorces, 7 million births, 4 million deaths, and 7 million Americans reaching 65. Staying put isn’t an option for many growing families or divorcing couples. The dream of retiring to a home requiring less maintenance can’t be postponed indefinitely. People need and want to move. Even a small fall in mortgage rates could be the enticement.

In the past two years, we’ve seen 4 million net new jobs, along with 50 million job switches. Many office workers would like a home that accommodates new hybrid work policies.

Pent-up supplies have been steadily building. Combine that with the usual demand response from lower rates, and the home sales market will become more dynamic.

Virtual Purchases Persist

Although sales were down slightly in August, NAR data indicates buyer motivation remains strong. Market pace and technology spurred 7% of buyers in August to purchase a home based only on a virtual tour, showing or open house, virtually unchanged from one year ago.

©National Association of REALTORS®
Reprinted with permission

Borrowing costs have fallen over the last two months.

Mortgage rates are ringing in the new year much lower than their near-8% peak this past fall. The 30-year fixed-rate mortgage has decreased for the past nine weeks, though breaking for a slight uptick this week to reach 6.62%, Freddie Mac reports.

“The overall trajectory of mortgage interest rates in 2024 is expected to decrease,” says Jessica Lautz, deputy chief economist at the National Association of REALTORS®. “While mortgage interest rates ease, there will be weekly shifts in the average rate. As home buyers move forward into the spring market, staying closely attuned with a mortgage broker can help them navigate the best rate.”

At this week’s rate of 6.62%, a monthly mortgage payment for a $400,000 home would translate to $2,048, Lautz says. That is considerably lower than in the fall, when a rate of 7.12% translated to a monthly mortgage payment of $2,221.  

Between late October and mid-December 2023, the 30-year fixed-rate mortgage plummeted more than a percentage point, says Sam Khater, Freddie Mac’s chief economist. “Given the expectation of rate cuts this year from the Federal Reserve, as well as receding inflationary pressures, we expect mortgage rates will continue to drift downward as the year unfolds. While lower mortgage rates are welcome news, potential home buyers are still dealing with the dual challenges of low inventory and high home prices that continue to rise.”

NAR is predicting that the 30-year fixed-rate mortgage will average 6.3% in 2024.

Freddie Mac reports the following national averages with mortgage rates for the week ending Jan. 4:

• 30-year fixed-rate mortgages: averaged 6.62%, rising slightly from last week’s 6.61% average. A year ago, 30-year rates averaged 6.48%.
• 15-year fixed-rate mortgages: averaged 5.89%, dropping from last week’s 5.93% average. Last year at this time, 15-year rates averaged 5.73%.

©National Association of REALTORS®
Reprinted with permission

Privacy, accessibility, pay-to-play—engaging home buyers and sellers online is getting complicated.

The World Wide Web is no longer the Wild West. Changing rules on data privacy, accessibility for disabled people, and net neutrality are throwing hurdles in your efforts to reach customers online.

In May, a European Union law took effect that is changing what’s considered acceptable practice in how you disclose your privacy policy and how you collect and store data on your customers. The General Data Protection Regulation makes it a crime to collect data on any person who lives in the 31 countries of the European Economic Area without first getting their permission. It also requires you to delete their data if they request it.

The good news for you, from a compliance perspective, is that the law is expected to have a significant effect on your business only if you focus your marketing on European consumers, says Finley Maxson, NAR senior counsel, noting that regulators have not yet released formal guidelines.

Still, compliance is a smart risk management strategy, says Maxson. At least one state—California—is advancing its own GDPR-like law(link is external), and others could follow. As more major American businesses with global web properties adopt privacy and security standards that conform to GDPR, consumers will start expecting the same from you. That means, if you’re not disclosing up front your policy on how you use cookies and store data, you could be called out by consumers for those omissions.

Accessibility Battle

Another flashpoint is website accessibility. In 2010, the U.S. Department of Justice released a notice about its intentions to extend the accessibility requirements under the Americans with Disabilities Act to websites. The rationale is that commercial websites are places of public accommodation just as commercial buildings are.

The department also weighed in on the issue in court, most recently in a case involving the big retailer Winn-Dixie(link is external). In that instance, it stated that websites that are public accommodations should be accessible to the disabled. Despite its demonstrated interest in the issue, the DOJ never followed up with final rules, muddying the legal picture and leaving the door open to lawsuits and demand letters from lawyers seeking changes for disabled clients.

In 2017, plaintiffs’ lawyers sent 815 of the letters, 16 percent more than in the previous year, to businesses, including real estate brokerages. “Absent rulemaking from the DOJ to clarify the ADA’s application to websites, businesses continue to be confused about what constitutes an accessible website,” says NAR Deputy General Counsel Lesley Muchow.

The cases by and large have been settled with the businesses agreeing to modify their websites based on standards called the Web Content Accessibility Guidelines 2.0, developed by a group of business, nonprofit, and government representatives. The standards say websites must be perceivable, operable, and understandable to people with impairments and robust enough so that software aids that people use are compatible with the sites. The standards outline a dozen concrete steps website developers can take, including captioning photos and videos and adding a feature for enlarging text. “In the absence of the DOJ promulgating rules, courts have been left to create them themselves,” says Andrew Grant, an attorney with DLA Piper in Washington.

NAR General Counsel Katie Johnson recommends working with a website provider knowledgeable about the WCAG 2.0 standards, and to seek indemnification from the website provider related to accessibility issues.

What’s needed are final rules from the federal government, but they’re unlikely to appear soon. In January, the Justice Department deprioritized the rules, which effectively takes them off the table for the foreseeable future. NAR is working with a coalition of industry groups on this issue, and several members of Congress are preparing a letter urging the department to issue guidance on website accessibility to stem these lawsuits.

Skirmish Over Internet Lanes

On top of these challenges, your real estate website is now facing the possibility of getting hit with pay-to-play schemes to stay competitive. The Federal Communications Commission earlier this year ended net neutrality rules that had been put in place in 2015. Net neutrality required internet service providers like Comcast, Verizon, and AT&T to treat all online traffic the same. But since the rules were terminated officially on June 11, ISPs are now free to monetize web traffic by offering speedier service to sites willing to pay for it.

That’s something the association continues to oppose. “NAR has concerns that the FCC’s decision to roll back net neutrality could negatively impact the way consumers search for homes or how real estate is transacted,” says NAR President Elizabeth Mendenhall. “We are still urging Congress and the FCC to work to ensure the internet remains a fair and open platform in which our 1.3 million members can freely share lawful content.”

In their public statements, ISPs have said they don’t plan to divide up internet traffic into fast and slow lanes, but there are skeptics. “At some point, the lines are going to be drawn by the major providers,” says longtime MLS executive David Charron, who chairs the Council of Multiple Listing Services. “The beast is going to have to be fed, so shareholders of these major corporations can benefit.”

The concern for real estate is that ISPs can offer premium plans to listing aggregation sites that are willing to pay the cost, giving them a leg up over competitors’ sites and reducing consumer choice.

Legal challenges are underway, including a suit against the FCC filed by almost half of the states’ attorneys general. In May, the Senate passed legislation calling for the restoration of net neutrality. In the House, it faces a higher climb, and the White House is unlikely to support its return, NAR analysts say.

The range of battles affecting your engagement with people online attests to the internet’s central place in the business world and modern life. The days of ISPs as upstart, marginal players are over. For real estate pros coping with a range of web uncertainties, adopting best practices in data protection and website accessibility will help you with risk management and ensure you’re meeting consumers’ changing expectations. The broader fight over net neutrality—and who’s controlling your access—will be waged in the courts, Congress, or both, for some time to come. The venerable warning from the analog age still applies: Don’t touch that dial.

©National Association of REALTORS®
Reprinted with permission