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:
Buy a smaller, crappier house in the same area.
Move out of town.
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!
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.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
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.
The lawyers think we should do more to prove our worth, so I’ll mention our recent sales where we represented the buyers.
Some may think we are too busy to help them or have other pre-conceived ideas, but hopefully these will help to demonstrate our ability to assist buyers. I encourage every buyer and seller to review an agent’s Zillow account to examine their sales plus reviews – here is a link to ours.
1. The sellers were getting divorced and we thought their price was attractive for a good-looking home in a premium south-facing location so we offered full price, and they took it.
2. Our buyers wanted to purchase a single-story turnkey home with view for less than $1,000,000 – which is getting harder and harder to accomplish. This had a new kitchen and primary bathroom, so our folks installed new hardwoods to complete the full package.
3. Our buyer completed a 1031 exchange with this groovy 2br condo west of the freeway in downtown Carlsbad. We made cash offers and lost out on six other properties before finally landing this gem:
4. Getting a house this size in Carmel Valley for this money has only happened four times this year – and one of those was an off-market sale, and another was one of the goofy Harcourt auctions:
I cover all price points and areas, and my specialty is identifying the less-obvious concerns while we are at the home or by video – which works great if you are busy or out-of-town.
I do all the showings and negotiate the contracts myself, and then Donna takes over. Once the home inspection is complete, she gets quotes for anything that needs attention and then goes to work on the sellers so they pay part or all of the expense.
I don’t think I’ve ever sold an actual ‘dream’ home. My buyers typically get a premium property at an attractive price – and I tell every buyer to expect to spend $25,000 to $50,000 on any house you buy!
Whenever I have a buyer who loses out on a bidding war, I try to get them right back on the horse. Thankfully, there are several houses sitting around that aren’t not selling in the $3 million range, so we made another offer yesterday.
First, I went to the open house and discussed for 30 minutes the state of the market (soft and picky), the good and bad features of the home, the sellers’ motivation, and generally built rapport with the listing agent who I had never met.
His listing of a 5,000sf tract home on a smaller lot has been for sale since April.
I mentioned that people don’t need a house this big. Buyers would rather spend less on a house that still suits their needs without the extra bedrooms, library, wine tasting room, etc. He mentioned that he had comps, and I pointed out that nobody else is coming to the open house. The market has changed.
The list price is $3,598,000.
We offered $3,150,000 with closing in two weeks.
I mentioned in my email that since the sellers had paid $2,100,000 in 2020, that they would experience 50% appreciation in four short years, or 100% cash-on-cash return on their $1 million down payment when they bought it, which is unheard of in the history of real estate.
He called me this morning.
He said that they are willing to counter $3,575,000, or $23,000 below list.
Don’t think that this market is going to get easier. The amount, and the quality of help will be going down further with the new rules. It will make it harder and harder to put deals together.
This will probably be the day that the real estate world changes forever. It will end up being the day that more paperwork buried the participants, which we’ll get through but it will take a few months before consumers get comfortable with it.
I’d like to memorialize the day with a story from the field. I mentioned that we made an offer last Sunday on a hot new listing in Carlsbad. We finally had a conclusion yesterday.
My buyer offered $3,730,000, which was $230,000 over the list price, and had an 80% down payment.
We lost.
We found out when the auto-notification was received that it had been marked pending. We had to wait for five days, and that’s how it ended – nice.
Those who think it looks easy to just go out and buy a house without any help, good luck to you. It is probably easier these days to buy an overpriced house that has been on the market for weeks, but if you want a good buy, don’t be surprised if it is hotly contested. For the rest of time.
“hiring the right (listing) agent also lets buyers know you are serious about selling.”
It’s true, and every decision a seller makes is telegraphing their motivation to sell.
What are buyers hoping to figure out?
Is the list price in the right ballpark?
Do the photos make a good first impression?
Will the listing agent be helpful or a barrier to sale?
It is going to be more critical than ever to hire a great listing agent. Buyers will be deciding if they are going to hire their own buyer-agent, or go direct to the listing agent unrepresented (if they are assuming that going direct will make a difference in winning the property).
How are buyers going to figure it out?
1. If the buyers and/or their buyer-agent have been around for a while, they will recognize the successful listing agents – they have seen their signs around, and have probably seen some of their advertising too. Buyers will have a feel for the pricing accuracy of the listing agents they recognize. Sellers should hire the agents who have a good reputation among those in the buyer pool because buyers and buyer-agents want to work with a listing agent who is transparent and someone they feel good about.
2. But buyers aren’t going to bank on what they think might be a good reputation. In 2024, every buyer is going to check out the agents online. Listing agents with a good track record of sales on Zillow will help put the buyers’ fears at rest. The agents with 12 sales per year have something good to offer in this challenging environment.
Example: I mentioned the 5-offer bidding war last week. I look up the sales of the listing agent every time, and in this case she had six sales in the last 12 months. I knew right then that it would be trouble trying to win it, and after 2-3 days of not delivering the highest-and-best counter that she promised, I knew we were toast (she sold it to a neighbor instead).
The sales history on Zillow is the most revealing data point about any agent.
3. Some listing agents have a reputation for pricing high, and letting it ride. Check how long their listings take to sell – it will tell you a lot about the price accuracy of this new listing they are offering.
4. How is the listing agent going to handle unrepresented buyers? Call them on the phone and ask. Just getting the listing agent on the phone is a miracle these days, so if you get them to answer, you might have a good one.
I guarantee this – every agent will struggle with the ‘unrepresented buyer’ question for months to come. Many already refuse to do dual agency, and an unrepresented buyer is similar so some listing agents won’t have any solution, other than, ‘go find a buyer-agent and pay them’. The other agents who get giddy about ‘unrepresentation’ probably just want to take advantage of the situation. A good listing agent would cover a few of the good and bad points.
5. Is the seller offering concessions? How much? How your listing agent handles these two questions will determine if the buyers will have their own representation, or if you and the listing agent want to take a chance on unrepresentation being a viable solution when everyone in the realtor universe is throwing mountains of disclaimers at you.
Any listing agent who declares that the seller is offering a 2.5% concession will have a parade of buyers through the house. Not only does it fix the buyer’s representation issue, but it also tells them that the listing agent gets it about creating a win-win for all.
These are some of the biggest concerns for buyers, so sellers should hire their listing agent in direct relation to how well they handle these points above! Get Good Help!
The buyers paid $4,137,000, and financed $2,689,000, which at 7% will be around $17,890 per month. Add around $4,000 per month for property taxes and $1,000 for insurance and it totals $22,890 per month.
We see on every listing in America that once a home hits the MLS, Zillow revises their zestimate to within a couple of dollars of the list price. That alone is shady and should be illegal, given how consumers have come to rely on them as the truth.
How close are they when homes are off-market?
The pre-market zestimates on our recent listings range from being as much as $550,400 UNDER the actual sales price, to being $815,000 OVER the sales price.
The scariest part is that sometimes they are close to being right!
Which is which? How do you know how accurate your zestimate is?
We should stop saying that commissions are negotiable and say it correctly. Every agent has their own commission rate – some agents charge more, and some charge less, and it usually depends on their skill set.
Are you going to hire a less-experienced agent who isn’t as good on pricing, just to save a point because you trust your zestimate? Yikes!
In mid-August, the new rule takes effect that NO buyer-agent commissions will be advertised on the MLS. Technically, sellers paying commissions to the buyer-agents will still be allowed for now – they just have to be negotiated outside of the MLS. There will be attempts to circumvent the new rule (see above), but sellers are going to think that they don’t need to pay anything.
I think we can expect seller-paid commissions to the buyer-agents to dwindle down to zero in the next 6-12 months. The DOJ has not insisted on this yet, but their attorney said the other day that they want the commissions decoupled, so it’s coming.
What’s next?
Buyers need to start getting used to the idea of paying for their agent.
Buyers will be required to hire a buyer-agent in writing to see homes, an idea that doesn’t sound great to anyone. Buyers don’t think they need an agent when they have Zillow at their fingertips, and agents will struggle to convince you that you need sign any agreement when you’re just looking.
I don’t want to be at your beck and call for the next 6-12 months and have to show you homes that I know you aren’t going to buy. But because we have a contractual agreement, you’ll be thinking……”hey, we hired you to be our agent, so snap to it.”
My Proposal:
You monitor Zillow via auto-notifications, and go to open houses all you want. You will be peppered by agents wanting you to sign an exclusive agreement for a year or two with the promise of showing you off-market deals that you won’t see on Zillow.
If you can resist that shady ploy, then when you finally find “the house” online, then I’ll get it for you. We will sign the agreement when I show you the house, and the agreement will be for this house only.
You’ll pay me 2% at close of escrow, with this guarantee:
If I don’t get you the house, you don’t have to pay me anything.
I’ll be the real estate gunslinger who will take care of business for you!
