Real Estate Update
By: Real Estate Hotline
Summer 2024 (Vol. 42, No. 2)
According to the National Association of Realtors (NAR) pending home sales are down slightly from 2023. The Midwest and South posted monthly losses in transactions while the Northeast and West recorded gains. Year-over-year, all U.S. regions registered reductions.
The Pending Home Sales Index (PHSI) – a forward- looking indicator of home sales based on contract signings – decreased to 70.8 in May. Year over year, pending transactions were down 6.6%. An index of 100 is equal to the level of contract activity in 2001.
“The market is at an interesting point with rising inventory and lower demand,” said NAR Chief Economist Lawrence Yun. “Supply and demand movements suggest easing home price appreciation in upcoming months. Inevitably, more inventory in a job-creating economy will lead to greater home buying, especially when mortgage rates descend.”
NAR predicts mortgage rates will remain above 6% in 2024 and 2025, even with the Federal Reserve cuts to the Fed Funds rate. The association forecasts that existing-home sales will rise to 4.26 million in 2024 (from 4.09 million 2023) and to 4.92 million in 2025 (from 2024). Housing starts are expected to rise to 1.382 million in 2024 (from 1.413 million in 2023) and to 1.492 million in 2025 (from 2024).
While the first half of the year was lower in sales, the price of an average home is going up more than expected. NAR anticipates the median existing-home price will increase to a record annual high of $405,300 in 2024 (from $389,800 in 2023) and to $412,000 in 2025 (from 2024). NAR forecasts increases in the median new home price to $434,100 in 2024 (from $428,600 in 2023) and $441,200 in 2025 (from 2024).
Low inventory, high interest rates and the change in compensation for realtors are key factors contributing to a tougher year for real estate but analysts are predicting the market should stabilize through the rest of the year.
International buyers purchased $42 billion worth of U.S. residential properties from April 2023 to March 2024, down 21.2% from the prior year. The 54,300 existing homes sold – the lowest since NAR began tracking in 2009 – slid 36% from the previous year.
The average ($780,300) and median ($475,000) purchase prices for foreign buyers were the highest ever recorded by NAR.
Canada, China, Mexico and India were the top countries of origin by number of U.S. existing homes purchased. The top U.S. destinations for foreign buyers were Florida (20%), Texas (13%), California (11%), Arizona (5%), Georgia, New Jersey, New York and North Carolina (4% each).
“The strong U.S. dollar makes international travel cheaper for Americans but makes U.S. homes much more expensive for foreigners,” said NAR Chief Economist Lawrence Yun. “Therefore, it’s not surprising to see a pullback in U.S. home sales from foreign buyers. Historically low housing inventory and escalating prices remain significant factors in constraining home sales for American and international buyers alike,”
The average ($780,300) and median ($475,000) existing- home sales prices among international buyers were the highest ever recorded by NAR – and 21.9% and 19.8% higher, respectively, than the prior year. The increase in prices for foreign buyers reflected the overall price increase for all U.S. existing homes, which climbed to $392,600. At $1.3 million, Chinese buyers had the highest average purchase price, with 25% purchasing property in California. In total, 18% of international buyers purchased properties worth more than $1 million from April 2023 to March 2024.
Q: What is a REIT?
A: REIT stands for Real Estate Investment Trust. These are companies that own, manage or finance income-producing real estate and are required to pass 90% of their income onto investors as dividends.
You can purchase shares on the public versions of REITs on the stock market exchanges but these can also be privately traded. Just like any other commodity, each REIT is unique. You need to research each one. For example, they may have different investment strategies, focus on different segments of the market or maybe based on one single project.
Q: Under the NAR Settlement regarding commissions, do buyers have to pay that cost now?
A: In general, NAR has agreed to put in place a new rule prohibiting offers of compensation on an MLS. Offers of compensation could continue to be an option consumers can pursue off-MLS through negotiation and consultation with real estate professionals. And sellers can offer buyer concessions on an MLS (for example—concessions for buyer closing costs). This change will go into effect August 17, 2024.
NAR has also agreed to require MLS Participants working with buyers to enter into written agreements with their buyers before touring a home. This change will also go into effect August 17, 2024.
If you are a buyer and your agent is using an MLS, you will need to sign a written agreement with your agent before touring a home so you understand exactly what services will be provided, and for how much.Written agreements are required for both in-person and live virtual home tours. You do not need a written agreement if you are just speaking to an agent at an open house or asking them about their services.
Agent compensation for home buyers and sellers continues to be fully negotiable. When finding an agent to work with, ask questions about their services, compensation and these written agreements. Contributing source: National Association of Realtors.
Q: Is there a national rent cap coming? What does that mean for tenants and landlords?
A: I think what you are referring to is a proposal from the current administration to restrict increasing rent prices. Our current president is calling on Congress to pass legislation giving corporate landlords a choice to either cap rent increases at 5% or risk losing federal tax breaks. The proposal also includes taking action to make more public land available for housing.
The proposed cap would last two years and affect landlords that lease more than 50 rental units which would account for more than half of all rental properties in the United States.
National Association of Realtors® President Kevin Sears issued the following statement in response to the Biden Administration’s rent control plan: “NAR opposes misguided attempts to cap or control rental rates. Price controls may seem appealing, but they have backfired on local governments and harmed the people we need to help the most. Developers are reluctant to build in areas where the government imposes rent controls on new buildings, and these policies actually decrease the supply of low- to mid-range housing units. We can protect the most vulnerable by supporting targeted assistance to renters and housing providers when there is a gap between rising wages and rising rent. But the long-term solution remains increasing supply. We need more than 328,000 new apartment units each year just to keep up with demand — that’s 4.3 million units by 2035.”
“Rent control is a rare instance where the research is fairly conclusive: It doesn’t work. These measures fail to improve most renters’ financial situation and shift the burden of economic difficulties, inflation, and other costs onto the housing provider with no counterbalance.”