Earlier in the year expectations were high that a real estate rebound was imminent. Inflation looked licked, the Fed was optimistic, sellers were preparing to put their houses on the market, and many buyers had resumed looking for their very own home sweet home.
More recently, a sense that maybe it’s time to slow our roll has surfaced. Inflation ticked up slightly. The Fed has said it still plans to reduce interest rates, but not as much as once expected.
“So far in 2024 we are seeing plenty of interested buyers, but inventory remains low, as the majority of homeowners are still sitting on interest rates of 4% or less,” said Marcus Miller, founder and broker of HELM Real Estate. “Short of death or divorce, it seems very little will induce some homeowners to sell right now.”
A recent CNBC article suggests that the inflation fight won’t be a straight line. Two steps forward, one step back. Or vice-versa.
The bottom line seems to be that inflation is going in the right direction for the most part — down from where it was and getting close to the 2% inflation target set by the Fed. But it’s not there yet. So don’t expect any interest rate cuts in May as some had hoped.
According to the CNBC piece, some consumers believe with fingers crossed that prices will subside back to pre-Covid levels, but that is not going to happen. Real wages — defined as wages adjusted for inflation — are higher overall today than they were in 2019. Prices simply can’t roll back to where they once were.
Experts agree that a 1% drop in interest rates is still possible this year. It won’t happen all at once, but the thinking now is the central bank may start reducing borrowing costs by the end of June.
“The prospect of seeing rates in the 5% interest range is huge,” said Miller. “It would be a dramatic catalyst, increasing inventory, and spurring buyer and seller participation in the real estate marketplace.”
In March, interest rates in the mid to high 6% range prompted some buyers to accept this as the new normal. Some single family homes and condos began selling with multiple offers. According to Miller, there was a two month inventory of single family homes — making it a seller’s market, and a 5+ month inventory of condos — making it more of a buyer’s market.
Meanwhile, on March 15, the National Association of Realtors announced a settlement with groups of homesellers, agreeing to end landmark antitrust lawsuits by paying $418 million in damages and changing rules on commissions. The NAR represents more than one million Realtors.
CNN reported that one new rule included with others will require buyers’ brokers to enter into written agreements with their buyers, with commissions stipulated. The agreement effectively ends the current home buying and selling business model, in which sellers pay both their broker and the buyer’s broker.
The NAR had pledged to appeal the case, but other brokerages settled — and, eventually, so did the NAR.
“NAR has worked hard for years to resolve this litigation in a manner that benefits our members and American consumers,” said Nykia Wright, interim CEO of NAR, in a statement. “It has always been our goal to preserve consumer choice and protect our members to the greatest extent possible. This settlement achieves both of those goals.”
It’s been reported that this will be the end of 6% commissions, but 5% commissions have long been more common in San Francisco. They were always negotiable.
The home buying and selling business model is going to change, and the stakes for buyers and sellers are enormous — especially in the city, where home prices are so high and regulations are so complicated.
One thing is certain: In the near future there will be fewer real estate agents from which to choose. According to Miller, after the anemic market of 2023, 15% of the city’s realtors chose not to renew their licenses.
If the 80/20 rule applies to this sector, and it seems it does, then 80% of San Francisco’s transactions are handled by 20% of the city’s realtors. Squeezed now to a greater extent, it’s likely more agents — struggling to make a go of it — will leave the business entirely in 2024.
Nevertheless, Miller said, “The market is in transition and hasn’t quite come out of the slowdown we experienced in 2023. However, we are seeing signs of life. Agents with active clients are delivering positive results for both buyers and sellers.”
Ever the optimist, Miller argues San Francisco remains a world-class city surrounded by three bodies of water with a finite amount of real estate. A strong rebound is inevitable, and good agents, capable of navigating the complex nature of the city’s real estate transactions, will always be in demand here.
Comments: [email protected]
