“Falsehood flies, and truth comes limping after it, so that when men come to be undeceived, it is too late; the jest is over, and the tale hath had its effect.” — Jonathan Swift
The city of Denton experienced another month of crazy home price increases in May. The median price of a home was unchanged from the previous month at $320,000. The average home price in Denton climbed to $350,181. That was a new record high and a 26.5% increase from the same time a year ago.
Months of supply slipped to 0.6 at the current pace of sales. Closed sales climbed 4% for the month, but pending sales showed a 10% drop. Record home price inflation and a severe lack of inventory is finally catching up to the Denton area real estate market. Sellers are still cashing in, with the average percent of list climbing to 103.7% in May.
Activity for the first few weeks of June show continued manic behavior among buyers, with average percent of list prices over 105%. One of the nicer Denton homes sold in June saw the buyer pay $120,000 over the original list price (115%). Selling a Denton home is currently like shooting fish in a barrel. The hard part is figuring out where to go after you punch your lottery ticket.
The 94 homes listed for sale in Denton for the May report is the lowest total in the NTREIS series going back to 2003. Even at the height of the great U.S. housing bubble, Denton had several hundred homes for sale in a typical month. With buyers falling all over themselves to get into a home, you would think real estate companies would be chopping listing fees for sellers to compete for the small pool of potential clients. With home prices going through the roof, you would think commission percentages would be getting squeezed pretty hard. That’s not happening yet, but changes are coming. In November 2020 the National Association of Realtors reached an agreement with the Department of Justice regarding commission rules lockbox access. The proposed final judgement requires NAR to take several consumer-friendly actions.
For starters, the amount of compensation offered to buyer brokers for each affiliated Multiple Listing Service listing will be made publicly available. There should be no surprises as to the commission earned by agents. Buyer agents will be required to disclose compensation offerings to their clients. Buyer agents will no longer be allowed to imply that their services are “free” when they are receiving a cooperating commission.
Filtering of listings based on commission amounts will be prohibited. Part of the NAR-DOJ settlement stipulates that MLS listings will not be filtered based on the commission offered or name of the listing broker or agent.
Finally, all licensed real estate professionals, with seller approval, should have access to lockboxes of properties listed on the MLS regardless of whether they subscribe to the MLS.
The new rule changes were originally slated to take effect at the end of March 2021, but NAR and the DOJ have been relatively quiet on the final court approval and implementation. A February video update from NAR’s deputy general counsel provides a brief rundown of the coming changes.
With offers of compensation soon to be visible to the public, consumers may want to have their broker explain why some of their listing fee structures are still stuck in the 80s. With home prices spiraling higher, one might think sellers would be keen to squeeze those percentages down even further. I have seen a variety of co-op commission offerings recently, but they are still the exception. Three percent buyer agent payouts are still the norm from what I have seen.
Real estate broker commissions are often a sensitive subject. When the market is good, many brokers want 6%. When the market is bad, many still want the same 6% fee. Overall listing commission percentages have declined over the past few decades. According to a recent study the going rate for real estate commissions in the U.S. fell to 4.94% in 2020. That may sound good, but it still equates to the price of good used car when you sell your house.
The 3% co-op commission, the commission offered to the buyer’s broker, has been particularly sticky over the years. It is a bit surprising that many listings are still offering 3% co-op commissions even with the market so extremely skewed in the favor of property owners. If a seller knows they will be sitting on multiple offers when they hit the market, does it really make sense to pay out $20,000 or more in commission fees? Navigating multiple offers provides its own set of challenges, but it’s never been easier to find a buyer for a home with the Fed creating an all-out feeding frenzy for property. You can thank the Fed for that.
It’s an unfortunate truth that low rates benefit the wealthy. Low rates mean it’s cheaper to finance debt. Americans working paycheck-to-paycheck still can’t afford anything as asset prices rise, but rich people can buy more homes and stocks. Private equity and institutional Wall Street landlords are feasting on the Federal Reserve’s liquidity firehose, shrinking the already depleted inventory of homes available for sale.
The Federal Reserve’s current structure and operation guarantee that the liquidity it unleashes into the economy will be trickle-down in nature. It is unfortunate that so many in the real estate industry fail to make the connection or refuse to discuss the ramifications.
As a reminder, June is a Federal Open Market Committee month. There will be another meeting with Powell and his merry band of monetary misfits. No changes in policy are expected for the June meeting. The Fed’s bloated balance sheet hit a new record high of $7.95 trillion last week as the Fed continues with $120 billion per month in quantitative easing.
Our summer of crazy home price inflation should be safe for another month at least.