New Year Real Estate Outlook
By M.C. Dwyer
After months of consecutive increases, 30 year mortgage rates peaked briefly at 8% recently. Over the past few weeks, a few economic indicators grew weaker, causing a bull market in bonds — essentially investors bet that the Federal Reserve may hold their rates steady. So, mortgage rates fell back down to about 7.4% at the time of this writing. Immediately, new mortgage applications rose by 3% for the week as more people applied for a mortgage: about 30% intend to refinance and 70% intend to purchase. The number of people applying is about 12% lower than last year.
The rate of home sales continued to slow: Santa Cruz County as a whole had about half the number of home sales as the same time last year. Single family homes in the San Lorenzo Valley overall appreciated about 7% compared to last year while average prices across our County fell about 4%. Brookdale has too few sales to be statistically reliable, and Scotts Valley stats are somewhat deceiving: in 2022 there was a $3.5 Million sale in Pasatiempo versus a top sale price of $1.7 million this year, skewing the averages.
Outlook for 2024
Lawrence Yun, Chief Economist for the National Association of Realtors (NAR), expects mortgage rates to decline to about 7% in time for the spring season, leading to more active buyers at the same time he expects more sellers to list their homes. He projects the number of home sales nationwide will increase by about 13.5%. Still, affordability is down to just 15% across California: the lowest rate in 16 years. Right now cash buyers are more active than usual, hovering around 30% of the market (typically 20%). Many all-cash buyers are more sophisticated than those needing a loan, and they’re often bolder, giving them advantages in this market.
Speaking of NAR, our trade association and most large brokerages are in the news as defendants in lawsuits. The cases have various allegations, but a few themes are that realtors colluded to set artificially high commission rates and that consumers were unaware of how their buyers‘ agents were compensated. One suit alleges Missouri homeowners were unaware of how much they paid for buyers’ agents commissions; damages awarded are in the neighborhood of $1.8 billion. Yet, to be a member of the trade association, NAR REALTORS follow a Code of Ethics which explicitly prohibits ANY discussion of commission rates amongst agents or brokers. Colluding to intentionally increase or set “customary” commissions is strictly prohibited as a violation of the Sherman Antitrust Act. So, NAR will be appealing the rulings, and the end result of any of these lawsuits is in the distant future.
Another irony to me is that NAR just recently implemented Clear Cooperation Policies specifically to create a fair playing field for consumers. Previously, properties were being sold in private clubs or within the brokerage — in many cases those homes were never listed on the MLS, aka open market. Most of us felt that was inherently unfair to the sellers, who didn’t get the exposure and likely higher sales price resulting from being listed on the MLS. It was also unfair to buyers, who didn’t get a chance to buy those properties. The MLS was designed to create a cooperative place for different companies to list their properties and work across companies with other buyers’ agents. The clear cooperation rule says we must list properties on the MLS within 1 business day of promoting it in any public manner.
I’ve no idea what the contracts in Missouri say, but for years the California Association of Realtors (CAR) legal agreements specifically explain in bold print that commissions are negotiable and that the listing agent shares the commission with the buyers’ agent through specific written offer (typically in the MLS). At the time of listing, the seller decides what they’re willing to pay each side. Most sellers are happy to pay the buyers’ agent because their listing gets far more showings that way than working with just one brokerage.
Many of these cases’ concerns could be addressed with greater transparency, so all clients realize how their agent is paid; CAR forms have had bold print about compensation for years. Our industry is rightfully concerned that legislation resulting from these cases may overreach with unintended consequences. For example, if the practice of the seller paying for the buyers’ agent were to end, buyers would have limited choices: they’d either have to pay agent fees themselves on top of down payment and closing costs or they could buy without representation possibly missing risks, trying to learn and understand everything, find all of their own resources, and negotiate on their own against the sellers’ paid expert. Some might suggest having the sellers’ agent represent the buyer as well, but that’s not arms’ length representation and many agents won’t do it.
In my nearly 20 years’ experience, every buyer I’ve ever worked with was completely relieved to learn they faced no out-of-pocket fee in exchange for my representation. Realtors’ compensation is negotiated when a seller signs their listing agreement with their agent. Fees are included in the price of the home. In essence, buyers finance our compensation and sellers pay for it at closing. Currently, we don’t get paid until both clients are happy and close the transaction, meanwhile, we bear the costs of marketing and the cost of our time. Every once in a long while a property sells quickly and easily, or a buyer chooses one of the first few homes they tour, but more often expertise is required to solve technical and unforeseen problems, and we sometimes invest years helping buyers find their Goldilocks home.
Our Rebuild
My husband’s contractor finished the house and successfully got us through the notorious final inspection on the first attempt! We join the small number of homes completely rebuilt after the 2020 August CZU Lightning Fires. For the first time, there were 10 more homes completed last month (usually the rate has been 1-3 homes per month). Yet, just 48 homes are completely rebuilt out of 911 homes lost to the fires. 166 permits have either been issued or are ready, and 235 permits are in process. Read more at the County’s Recovery Permit Center Dashboard: https://www.santacruzcountyca.gov/FireRecovery/RecoveryPermitCenter/RecoveryPermitCenterDashboard.aspx
On the day of our final walk-through, I was able to tell our contractor, James Harnett / Coastal Construction, that I never doubted he was the right choice for us. We talked about the intensity of the work, and how both he and Mark spent countless hours in the evenings and on the weekends, mentally processing all the many elements of the build. Since James has just finished two rebuilds, he may not be available for new work for a while, but I wholeheartedly recommend him.
“M.C.” (MaryCatherine) Dwyer, MBA, REALTOR®
(831) 419-9759 E-mail: mcd@mcdwyer.com Website: https://mcdwyer.exprealty.com
CA DRE License 01468388 EXP Realty of California, Inc.
Sources: California Association of REALTORs, CNN, MLS as of 11/15/2023, Mortgage News Daily, National Association of REALTORs, Orange County Register, Realtor.com, Reuters, US News and World Report
