The market trend catching our attention

Plus, where homes are selling WAY above list price

Looking ahead

We can all feel the anticipation as we look forward to the Fed’s meeting next week. We continue to read the tea leaves to guess whether we’ll see a .25% or .50% rate cut, although we (and almost every analyst out there) would be shocked if it was the latter.

We can’t say this enough–make sure your buyers know what’s coming. If there’s an opportunity on the market now, they need to be ready to grab it, or they could wind up losing it to the hordes of competitors who will be rushing into the market. 

Obviously, that’s not the only big news in our industry. With the election now less than two months away, there is a lot of uncertainty out there. In the newest episode of our podcast "Rise Above the Ranks", we discuss how elections affect the market. It’s a short episode, but jam-packed with info. We think you’ll enjoy it.

And now, let’s jump into today’s Blueprint!

- James and David

Has the price reductions trend peaked?

Source: Unsplash

In August, 25.9% of listings had a price cut, down from 26.2% in July, but up 23.4% YOY. That’s according to Zillow’s most recent housing update. Here are the other key takeaways the report:

  • 33.4% of homes sold above their list price, down from 39.1% in July and 35.4% in June.

  • The typical home value was $362,143

  • The typical monthly mortgage payment (assuming 20% down) was $1,827 in August, down 3.4% month-over-month, as lower mortgage rates pushed down mortgage costs. 

  • Home values are up year-over-year in 44 of the 50 largest metro areas

    • Biggest rises: San Jose (9.1%), Hartford (8%), and Providence (7.1%)

    • Biggest drops: New Orleans (-4.6%), Austin (-4.6%), and San Antonio (-2.9%)

  • New listings increased by 0.8% YOY

  • Newly-pending listings dropped 2.9% YOY and 5% MOM

Our take

While this is an excellent overall assessment, we definitely are paying attention to the apparent peak in price reductions. This is likely due to increasing levels of withdrawals from the market. We expect a Q4 climb in price reductions, but nothing like we’ve seen the last two years when spiking mortgage rates surprised sellers, slowed the market, and caused price cuts to accelerate. Right now, we are seeing the opposite conditions. With interest rate cuts on their way, we’re expecting to see buyers start moving.

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Analyzing the latest inflation numbers

Source: BLS

On Wednesday, the BLS published its latest update on inflation as measured by the Consumer Price Index (CPI). Here’s what it reported: 

  • CPI Inflation declined to 2.5% year-over-year, the lowest level since February 2021, increasing 0.2% month-over-month and down from the 2.9% notched in July.

  • Core CPI inflation, which excludes food and energy prices, held steady at 3.2% year-on-year, growing 0.3% month-on-month. This is the lowest Core CPI reading since April 2021

  • Housing costs accounted for more than 70% of the overall year-over-year increase. For example, while core inflation rose 3.2% over the past year, that measure clocked in at a low 1.8% when cutting out housing.

Our take

The BLS calculates housing costs by looking at the average rents in force. Therefore, it moves much more slowly than private sector indexes based on newly signed leases each month. As a result, Core CPI came in a little hotter than expected, even though the overall trend in inflation is down. Although inflation remains cool enough for the Fed to go with a 50 basis point cut to get ahead of further weakness in the labor market, most analysts expect a 25 bps rate cut at the Fed’s meeting next Wednesday. 

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Markets where homes sell the most above list price

Source: Unsplash

Analyzing Zillow’s latest sales-to-list ratio, researchers at Resiclub have determined that homes are selling above asking prices to a higher degree in the Northeast, Midwest, and Southern California. 

For reference, a sale-to-list ratio above 1.0 means the typical home in that metro sold for more than the list price, while a ratio below 1.0 means the typical home sold for less than the list price. Buffalo, NY, for instance, has a ratio of 1.08. That means the typical home is selling +8% above its price on average. By contrast, Naples, FL has a ratio of 0.95, meaning the typical home is selling for -5% below its list price.

Among the 250 largest metro area housing markets, these are the top 5 markets where homes are selling above and below list price:

Above List Price

Below List Price

Our take

It’s not hard to spot the dynamics underlying this trend. Unlike the booming home construction seen in many Sun Belt regions, housing markets in the Northeast and Midwest are experiencing much lower levels of new development. In the Southwest and Southeast, as new homes are built, builders use strategies like rate buydowns to enhance affordability, which in turn slows down demand in the resale market. However, in the Northeast and Midwest, with fewer new homes coming to market, existing homes are the primary option for buyers. Basically, sellers have an advantage in the Northeast, while buyers have an advantage in the Sun Belt.

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Schematics

The news that just missed the cut

Source: Unsplash

Foundation Plans

Advice from James and David to win the day

In our latest episode of Rise Above the Ranks, we discuss how the uncertainty of an election year impacts the real estate industry. We examine anticipated market shifts, potential incentives for buyers and sellers, and the likelihood of interest rate adjustments, among other things. It’s a fast-paced and short episode packed with a lot of info. For now, we want to highlight one overarching theme that we think every agent should be preaching to their clients: get in now before the frenzy starts! 

If a buyer finds a house that they like and the financials work out, they should jump on the opportunity. Well, perhaps not immediately, but soon after the interest rate cut and ensuing mortgage rate drop. If they don’t move fast, they’re going to be dealing with more competitors entering the market. At that point, sellers are likely to stop making big concessions and price reductions. The consensus expectation is that, by the end of 2025, the Fed will have cut interest rates by about 250 basis points. As a result, it makes total sense to buy now and refinance later. 

As we said, it’s a short episode, but we pack a lot into it. We hope you listen. Drop us a line after you do and tell us what you think!

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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

“The distance between dreams and reality is called discipline.” — Paulo Coelho

Have a wonderful weekend friends. We’ll see you back here on Tuesday!

- James and David