Good sign for mortgage rate cuts?

Plus, where home prices are INSANE

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- James and David

U.S. home prices hit new all-time high

The median sale price in the country was $397,954 across the four-week period ending June 30th, a new all-time high according to Redfin. The sale price was up 4.9% YOY. Here’s what else Redfin reported:

  • Pending sales were down -4.6% YOY, the biggest decline in 4 months

  • New listings were up 9.9% YOY, the biggest increase in 2 months

  • Active listings were up 17.5% YOY

  • Housing supply reached 3.3 months (for reference, 4 to 5 months is considered balanced between sellers and buyers).

  • Median days on the market were 32 days, up 5 days YOY

  • 32.3% of homes sold above list price, down -3.7% YOY

  • 6.9% of homes for sale lowered their asking price, the highest level on record

Our take

There is good news and bad news for buyers in this report. Yes, that record sale price is a big number, and mortgage rates are still elevated. However, buyers should be delighted by that nearly 10% jump in new listings, and the record share of sellers willing to lower their asking prices as their listings have grown more stale. While prices are high, buyers have ways to leverage the situation to their advantage.

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Jobs report makes Fed rate cuts more likely

In June, employers added 206,000 jobs, according to the BLS, noticeably lower than the average increase of 220,000 jobs across the previous 12 months. Unemployment ticked up to 4.1%, reaching its highest level since November 2021. 

The increase in the unemployment rate was due to more people becoming unemployed, rather than more people joining the labor force. The widely used Sahm rule, which has a perfect track record of predicting recessions in the past, looks for a 0.50% increase in the unemployment rate over the past year. This report shows the increase currently stands under that number at 0.43%. However, we should note that the Sahm rule may not be as predictive as it was in the past, given that the post-pandemic economy has repeatedly defied expectations.

Our take

This report, combined with the latest inflation data, makes a September rate cut likely. Fed officials have said they are letting inflation data guide their policy since the labor market has cooled enough to no longer provide inflationary pressure. The next CPI report will be released on Thursday and the next PCE report will drop on July 26. If these reports don’t contain any surprises, the Fed should start laying the groundwork, perhaps as soon as their July 31st meeting, for rate cuts in September. Outside of any unforeseen economic events or spikes in inflation, we should expect lower mortgage rates to close out the year.

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Top counties requiring the highest percentage of income to buy a home

Nationwide, homebuyers must now use 35.1% of their income to purchase a median-priced home, according to ATTOM’s latest analysis of home affordability in the U.S. This is up from 31.9% in Q1 2024 and 32.1% in Q2 2023, and significantly higher than the 21.3% in Q1 2021. 

Here are the top 10 counties that require the highest percentage of income to buy a median-priced home (in Q2 2024):

Our take

It isn’t a coincidence that eight of these counties are in California. As we’ve been telling you, the lack of new housing development in the state is appalling. For example, the Austin metro area (population: 2.4 million) permitted more housing units last year—especially large (five or more units) apartment buildings—than the Los Angeles (population: 12.8 million) and San Francisco (population 4.6 million) metros combined. This is simply untenable. While we welcome all housing initiatives from the Federal government that increase housing supply, state and local officials have to step up. Otherwise, homes will become the privilege of the uber-rich.

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The news that just missed the cut

Foundation Plans

Advice from James and David to win the day

The brokerage you join significantly impacts your pay, access to technology, and career development. it’s important to choose wisely. Today we begin our two-part primer on the essentials that every agent needs to know when considering a brokerage:

What is a real estate brokerage, and what do brokers do? – A licensed real estate brokerage is a legal entity, such as a sole proprietorship, partnership, LLC, or corporation that employs a licensed real estate broker. The broker, or broker-owner, acts as the principal who oversees, directs, and is responsible for all licensed activities and real estate services of the brokerage. Until they get their broker’s license, every agent has to work underneath the auspices of a broker of record. Many agents never get a broker’s license. They simply remain agents and work underneath a broker for their entire careers.

What are the different types of residential brokerages? – Typically, brokerages fall into four categories:

  • Independent, not affiliated or franchised (e.g., Baird & Warner)

  • Independent franchised companies (e.g., Howard Hanna)

  • A national or regional organization or its subsidiaries, franchised (e.g., BHHS)

  • A national or regional organization or its subsidiaries, not franchised (e.g., eXp)

Remember: Just because brokerages fall into the same category doesn't mean they'll be similar. Here are some important differences to consider when evaluating brokerages: 

  • Commission structure — traditional vs. discount brokerages 

  • Virtual or technology-based models

  • Limited-service brokerages

  • Boutique firms

  • Exclusive buyer brokerages

  • Exclusive seller brokerages

  • Limited-function real estate referral companies

  • Brokerages that specialize in specific market segments (e.g., luxury homes, trophy properties, new home specialists, bank REO properties, waterfront properties, land, and farms)

How do agents get compensated? – Most agents are independent contractors whose earnings are reported on IRS form 1099. Pay is typically based on a fixed “percent split” of the sale commission. For example, if a brokerage charged a 3% commission on a $500,000 house sale (i.e., $15,000 commission), an agent on a fixed 50/50 percent split would receive $7,500 while the brokerage firm gets the other $7,500.  

Here are some other types of commission plans:

  • Tiered commission plans that increase an agent's commission split as they increase their sales production

  • Capped commission splits allow an agent to receive 100% of the commission after a set threshold, or "cap," is met

  • Commission plus annual profit sharing

  • 100% commission minus a monthly fee and/or a per-transaction fee, paid to the brokerage

Less commonly, agents may be employed by a brokerage and earn a salary, with or without a share of profits or a production bonus. 

Before choosing a brokerage, make sure you know exactly how you will be compensated, and make sure you get it in writing. 

We’ll continue with the second part of our series in our next edition, but start with these resources before you choose a brokerage. 

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Just in Case

Keep the latest industry data in your back pocket with today’s mortgage rates:

Source: Mortgage News Daily

Live the life you want, friends. Don’t get distracted. Stay ruthlessly focused on your goals and set in place the systems you need to help you achieve them. Nobody else is going to do it for you.

We’ll see back here on Friday!

- James and David