As we enter an election year the current administration points to how strong the economy is. But there’s a disconnect between these regular public assurances and people’s life experiences. So many are either locked into their current mortgages or just completely sidelined from the market.
This is no joke: High mortgage rates. Wages lagging while housing prices soar. The whole environment where homeownership is treated as a privilege rather than a norm. Recently, Fortune highlighted a daunting challenge for prospective U.S. real estate buyers: to afford a home in today’s market, they need an annual income increase of almost $50,000 compared to their pre-pandemic earnings.
So, will the runup to the election bring any opportunities to current owners and hopeful buyers?
Voters Don’t Like Being Left Out of the Market. Housing Gets Votes.
This year, there’s high stress and uncertainty over potential election outcomes. And some people will decide to hold off on big financial decisions until after the election results. After all, new leaders may modify tax rates, breaks, and credits.
The opposite of uncertainty is confidence. If people think the economy is basically in good shape, they are more likely to sell their homes and buy others, keeping the market fluid.
Confidence in the economy boosts all the reasons not to delay.
If the right opportunity comes up, moving sooner rather than later has advantages. Once closing day is in the rear-view mirror, a new owner’s equity-building starts. We all know what tax deductions and credits to expect, too.
So, can we be confident? The country has managed to avoid a recession so far, but the housing market is hostile to many would-be buyers. A few weeks ago, Redfin ran a survey, asking about 3,000 owners and renters if real estate affordability will affect their voting style in the upcoming presidential election. Over half of the people surveyed said… Yep. The cost of housing impacts who they’ll vote for. The housing market matters to officials running for every level of office — from the local to the Oval.
Perhaps it comes as no surprise that the White House is pressing Congress to greenlight tax credits for first-time home buyers and people willing to part with their starter-style homes.
Take a closer look at why homeowners have hesitated to put their homes up for sale for many months.
Watch How Senators and Representatives Act on Housing. Consider Nevada…
One reason for the scarcity of affordable homes? Large, publicly listed companies and investors. They opportunistically took control of one in four low-priced homes in the last quarter of 2023. This sucks out vital supply, and presses prices up.
Some state politicians are stepping in to deal with it. Take Nevada. When corporate investors descended on Nevada to buy up affordable homes, Nevada pressed back.
In response to these challenges, U.S. Senator Jacky Rosen (D-Nev.) has proposed the Housing Oversight and Mitigating Exploitation (HOME) Act, aimed at tackling corporate price gouging in the housing market. The legislation seeks to:
- Cap rent increases and combat housing inflation, providing relief not just in Nevada but nationwide.
- Impose fines on institutional investors, with the proceeds going towards expanding affordable housing options.
- Assign the Department of Housing and Urban Development (HUD) the task of curbing corporate-driven price inflations.
- Prohibit the sale or rental of homes at exorbitant prices, especially during a housing crisis, ensuring fair access to housing for all.
These measures are designed to make homeownership more attainable for Americans by addressing some of the root causes of the current housing affordability crisis.
Reno homes go for a median price of $500,000. Prices are up more than 20% since 2022! Rosen calls the city’s market “ridiculous and unattainable.” No wonder making a transition from renter to deed holder feels nearly impossible.
The White House has responded to Nevada’s housing story. It’s now “doubling down” on its own support for ordinary buyers and renters, focusing particularly on the Las Vegas metro area.
Better Days Ahead? Don’t Miss Chair Powell’s Next Move.
Now, if only interest rates were more forgiving! That would make more hopeful buyers eligible for a mortgage loan. OK, we have seen interest rates go back down a little bit lately. But inflation remains sticky. So, the federal government has not cut the federal rate this month.
The Federal Reserve could cut lending rates for banks, indirectly enabling mortgage lenders to adjust their rates downward. While the Fed has to avoid mistakes that could tank the economy, it’s expected to cut rates three times in 2024. Those rate cuts will allow for more borrowing and lending, and should bring hope to people sidelined from the market so far.
No doubt, an election year puts political pressure on the Fed. But officials are committed to “let the data speak” when adjusting bank lending rates. It doesn’t matter who’s who in the polls. Fed officials have vowed to cut interest rates when they’re confidently in control of inflation. Watch what Federal Reserve chair Jerome Powell does this summer.
It’s a promising time for sidelined sellers and hopeful buyers. Still, lower mortgage rates in the second half of 2024 won’t be a cure-all for this market. Low rates don’t fix a housing shortage.
But wait! There’s more information incoming. The fees for listing homes look like they’re about to take a dramatic drop…
A Wild Card Just Appeared, Marking the End of the 6% Broker Commission.
In a dramatic turn of events this month, the National Association of REALTORS® (NAR) hammered out a court settlement. Once it’s court-approved, it will end the practice of etching commissions for brokers into home listings.
NAR, whose affiliated agents handle some 90% of residential deed transactions, is now willing to:
- End the practice of including agent compensation in listings on the multiple listing services.
- Stop forcing agents to subscribe to (and pay to belong to) multiple listing services.
- Start having buyers’ agents enter direct contracts with their buyers.
This bombshell agreement will “destroy the current homebuying and selling business model.” Here’s how:
- Purchase agreements will no longer be inflated by the standard (and soon to be gone) 6% agent fees.
- The market will welcome more offerings of for-sale-by-owner homes, and homes with lower agent fees.
- Alternative fee agreements will become normal — arrangements like per-service (à la carte) pricing from buyers’ agents; flat fees; and low-fee brokerages.
Overall, broker commissions are poised to drop substantially — 25% to 50%. A major power boost for ordinary sellers and buyers is coming into view.
All things considered, 2024 is an election year, plus a whole lot more. What an intriguing and promising year for the world of deed transactions! We’ll keep our readers posted.
Supporting References
Eric Marks for This Is Reno: U.S. Senator Rosen Targets Corporate Landlords (Feb. 25, 2024; citing statistics from Realtor.com and the Nevada Housing Coalition).
Alena Botros for Fortune.com via Yahoo Finance: Welcome to the Housing Election – Americans Are Trapped in Their Houses or Outside the Market Looking In, and It’s Focusing Their Thinking for November (Mar. 11, 2024).
Bryan Mena for CNN.com: Presidential Election or Not, the Fed Will Cut Interest Rates in the Fall If It Must, Economists Say (March 17, 2024; in CNN Business Before the Bell newsletter; citing market analysis from TD Cowen Insights).
Tobias Burns for The Hill via Yahoo News: Investors Bought Record Share of Low-Priced Housing in Fourth Quarter – Report (Feb. 14, 2024).
And as linked.
More on topics: Inflation and real estate, House hacking
Photo credits (both): Tara Winstead, via Pexels.