Where home sale profits are BOOMING

Our two-part series

With HomeServices and Douglas Elliman recently settling, and the NAR settlement getting preliminary approval, we’ve seen all the questions resurface about the future of our industry.

Today, we decided to answer those questions as succinctly as we could. Scroll down to today’s Foundation Plans where we provide answers to some of the important questions that many people, both agents and clients, are asking us.

This will be Part One of a two-part series, as we will answer more questions this Friday.

We know this is a highly unusual time for our industry, so we will do our best to break down all the key information so you know everything you need to know. Nothing more, nothing less!

- James and David

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High insurance premiums will lower home prices 

If home insurance premiums rose 20% annually for the next 20 years, home prices would fall as much as 10%. That’s according to a recent report from S&P Global Market Intelligence via Realtor.com. 

Realtor.com also sheds more light on the changing state of home insurance. Here are some key details: 

• In areas with high sea level risk, there is a $25,000 decline in home values for every $100 rise in insurance premiums

• 30% - 40% of deals in Louisiana fell apart after someone under contract to purchase got an insurance quote.

• About 90% of Florida investors missed out on at least one deal because insurance was either unavailable or unaffordable

Our take

This is one of the first reports we’ve seen that concretely explains the effect of rising home insurance premiums on home prices. It’s not good and it’s not pretty. Unfortunately, while insurance costs are high, they’re often artificially low for the riskiest homes. The solution that many locales have adopted – i.e. price ceilings on insurance premium increases – doesn’t seem optimal to us. This just keeps premiums lower for the highest-risk properties but spreads out the risk by requiring less vulnerable property owners to pay more. We are doing everything we can to sound the alarm on this issue. Unless a policy solution is implemented soon, only the super-wealthy will be able to live on the coast. Only they will be able to either afford the insurance or afford not to have it.

The hottest housing markets

The “hottest markets” as determined by Realtor.com saw 5.2% annual home price growth in March, compared to the average of 0.2% nationally. However, it should be noted that the difference between these metrics has been narrowing, and the average hot market price growth has slowed. 

Based on market demand (i.e., unique views per property and the number of days a listing remains active on Realtor.com), here are the nation’s hottest markets in March:

1. Manchester, New Hampshire

2. Rochester, New York

3. Springfield, Massachusetts 

4. Worcester, Massachusetts

5. Concord, New Hampshire

6. Oshkosh, Wisconsin

7. Columbus, Ohio

8. Boston, Massachusetts

9. Janesville, Wisconsin

10. Providence, Rhode Island

Our take

Chalk the red-hotness of these markets up to limited inventory. Fewer homes on the market means more views per property, higher prices, and typically faster turnover in the listings. These markets sold homes on average 5 days faster than the previous year, and about 3 weeks faster than the national median. On average, the month’s hottest markets attracted nearly three times more viewers per property compared to the typical U.S. listing.

Housing markets with the biggest increases in profit margins

The typical gross profit on home sales nationwide is $120,500. That’s according to ATTOM’s latest home sales report for Q1 2024. Profit margins on median-priced single-family home and condo sales decreased to 55.3%, down from 1.8% from last quarter and 1.2% from last year. 47% of the metros (63 out of 147) analyzed saw profit margins increase.

Here are the top 10 metros that saw the largest increases in profit margins:

1. Ocala, FL (up from 90.8% to 128%)

2. Punta Gorda, FL (83.5% to 103.1%)

3. Deltona–Daytona Beach–Ormond Beach, FL (66.7% to 81.1%)

4. Scranton–Wilkes-Barre–Hazleton, PA (94.1% to 106.5%)

5. Atlantic City–Hammonton, NJ (62.1% to 72.8%)

6. Bakersfield, CA (68.7% to 78.7%)

7. Fort Wayne, IN (54.7% to 64.7%)

8. Lake Havasu City-Kingman, AZ (67.1% to 76.3%)

9. Memphis, TN-MS-AR (55.7% to 63.9%)

10. Oxnard-Thousand Oaks-Ventura, CA (63.1% to 71.2%)

Our take

The latest price and profit numbers are raising questions about whether the housing market boom is starting to slow. However, it’s too soon to tell. We saw a similar downward pattern from late 2022 into early 2023, and then the market surged. Plus, the profits are still very high when compared to numbers over the past decade.

Schematics

The news that just missed the cut

• Home buyers outnumber sellers in most markets nationwide

• Q2 housing market forecast 

• Scripts from #1 RE/MAX agent Jordan Cohen for your next listing presentation

• The 25 richest billionaires in real estate worldwide

• HomeServices of America settles for $250M

Foundation Plans

Advice from James and David to win the day

As we told you up top, with HomeServices and Douglas Elliman recently settling, and the NAR settlement getting preliminary approval, we want to give you an update on where things stand on the key issues regarding Sitzer/Burnett and all the other major cases as of today. This is the first part of our two-part series that we will complete on Friday.

Who is covered by the NAR settlement? And who isn't? – The NAR agreement applies to brokerages led by a Realtor principal with residential transaction volumes under $2 billion in 2022. It also includes MLSs fully owned by a Realtor association.

This leaves approximately 30 MLSs and 90 brokerages not covered, but they can participate by contributing to the settlement fund or opting for mediation. However, they must decide quickly, as the deadline for action is June 18th.

What is the current settlement tally? – The commission cases' fund has surpassed $950 million. Here are the settlements announced by brokerages/organizations as of April 29th:

• National Association of Realtors: $418 million

• HomeServices of America: $250 million

• Anywhere Real Estate: $83.5 million

• Keller Williams: $70 million

• Compass: $57.5 million

• RE/MAX: $55 million

• Douglas Elliman: Up to $17.75 million

• Real Brokerage: $9.25 million

• Realty ONE, @properties: Damage total not announced yet

What rule changes are coming, and when? – The NAR settlement is set to become effective in July. Here's what will happen when it does:

• MLSs will cease to list compensation offers for buyer agents. This isn't simply a matter of accepting "$0" as sufficient; the field for compensation will be entirely removed.

• Buyer agents will be required to obtain written agreements from clients before showing them a home, a practice already mandated in 18 states.

• Compensation must be specified as either a percentage or a dollar amount.

• Agents cannot accept compensation beyond what is outlined in their agreement with buyers.

How will buyer’s agents get paid? – Buyer agents can receive payment through various methods. For instance:

• Homebuyers can directly pay their agents.

• Sellers can provide concessions that buyers can use for purposes such as closing costs and paying their agent (buyers can also request concessions in their offer if the seller is not offering them).

• The listing broker can allocate a portion of their compensation to the buyer agent.

As you can see, we have a lot to say. We will finish with our update in our next edition, but in the meantime use these guides to learn more. 

To learn more about Estate Media, visit their website.

Just in Case

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

That’s a wrap on this edition of The Blueprint! Drop us a line at any time. We love hearing from you.

Thanks for reading, and we’ll see you back here on Friday!

- James and David