Tag Archives: homebuyers

Who should benefit more from selling a home: sellers, buyers, realtors, Zillow, others?

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The process by which a single-family home or other residential property is built and sold has been under discussion in recent years. Here is one argument about who should benefit more from the process:

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So, when the National Association of Realtors recently adopted a policy allowing limited off-MLS marketing, Zillow announced it would permanently ban any listing not posted to the MLS within one day. Essentially, Zillow — a company that doesn’t sell homes — is asserting it gets to decide how you can market and sell your home. 

Zillow claims it is protecting consumers from off-MLS marketing, which it says leads to longer market times and lower prices. But a 2024 study by Midwest Real Estate Data — the MLS serving Chicagoland — shows the exact opposite. MRED offers a Private Listing Network that shares listings with all member agents without circulating them to public websites. Homes first marketed through MRED’s Private Listing Network sold 55% faster, for more money, and at a higher percentage of list price (97.5% versus 95.4%) than those listed publicly from day one.

Our own experience across tens of thousands of transactions confirms the findings of this study. At @properties Christie’s International Real Estate, we developed a “private-to-prominent” listing strategy that starts with an off-MLS marketing period and builds to a full public offering. This approach has several benefits. It allows a seller and their agent to prepare the home for sale while building interest and demand. It also gives them an opportunity to test a price without having Zillow or other websites display any reductions that might be made prior to the public listing. And the listing does not accumulate market time during this premarketing phase. (Typically, as market times increase, buyer interest decreases.) 

This approach can result in faster, higher-value sales, often before the home ever hits the MLS, or Zillow. Most importantly, it keeps the seller in control. They choose when to list publicly and can accept or reject an offer at any time. 

The key here is at the end: “it keeps the seller in control.” Should the seller be the one calling all the shots and having the advantages?

Another argument could be made that the seller having the primary options limits potential buyers. Is the home reaching all the possible purchasers? If it is on a private network first, how often does it reach the general public? Could private listings build off existing networks, reproducing inequalities?

Or should Zillow and other actors play the primary role as many Americans look for real estate online? Is this more of a tug-of-war between the established real estate industry and the online competitors who offer information for any searchers without the need to contact an agent? There are a lot of jobs and a lot of money at stake.

Is there any role for communities or people who might want to access certain communities down the road? If the strength of local real estate is often taken as a sign of local vibrancy and status, should this only involve private actors?

I suspect this discussion will continue as different actors look for an edge in real estate. Hopefully this does not come down to solely who can lobby the most effectively.

American home sales still down

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Existing home sales in the United States are down to levels not seen for almost two decades:

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Sales of existing homes in the U.S. are on track for the worst year since 1995—for the second year in a row.  

Persistently high home prices and elevated mortgage rates are keeping potential home buyers on the sidelines. Sales of previously owned homes in the first nine months of the year were lower than the same period last year, the National Association of Realtors said Wednesday.

Existing-home sales in September fell 1% from the prior month to a seasonally adjusted annual rate of 3.84 million, NAR said, the lowest monthly rate since October 2010. Economists surveyed by The Wall Street Journal had estimated a monthly decrease of 0.5%. 

Three quick thoughts in response:

  1. The article hints at the consequences of this low level of sales. The mortgage industry is not originating as many mortgages. Potential homebuyers do not have as many options to choose from and the prices are higher. Not mentioned: does this mean this is helping to keep home values high? Or how much less economic activity does this all add up to?
  2. Why are home sales measured in absolute numbers? Compared to 1995, I assume there are more potential homes that could be sold in the United States because there are more homes. If we looked at the percentage of existing homes sold, wouldn’t the lower activity even be more clear?
  3. The expectation in this article and elsewhere seems to be that home sales should be at a higher level or should be growing in number. How cyclical are these numbers? How realistic is it to expect ongoing growth in this area? Looking at the chart in the article going back to 1981, it looks like there are 3 rises in growth followed by periods of lower numbers.

By itself, I am not sure what this particular figure compared to change over time means. What happens in the long run if the trend continues or it does not?

Waiting for the realtor to advertise that they get the buyer the best price

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I recently received a glossy mailing from a real estate agent describing their recent efforts on behalf of a property owner. A few excerpts from the advertisement:

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***Multiple Offers in 24 hours***

My strategic marketing plan generated over 40 groups of potential buyers, igniting considerable excitement from the moment the property hit the market. By Saturday, we had received multiple offers, ultimately securing a contract that surpassed my client’s wildest expectations!

This sounds good for a homeowner looking to sell. They had multiple offers to consider. They got more money that they might have. This agent helped them move to the next stage with more money.

I do not recall getting an advertisement for a realtor that goes the other direction: I found the home buyer a great deal. I negotiated the price down. I helped point out features of the property that led to price reductions. I got the buyer a great deal.

There certainly is a market for getting sellers the most money they can. Americans value their homes for the money they can provide upon sale. They want to see a big jump in the value compared to the price at which they purchased the home.

Buyers also want good financial deals. If you wanted had a tight budget or wanted to buy investment properties, wouldn’t buyers rather have someone who keeps the price lower? I assume there are realtors who do this well and want to find clients.

Are these 15 factors that decide the best suburb or community the ones people to use to make a decision?

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In recently looking at the list of the “2024 Best Suburbs to Live in America” according to Niche, I was curious about their methodology. Here are the factors they consider:

This is a long list and it is hard to quickly think of something that should be on the list that is not.

But is this how people select a house or a community? Do they look at all of these factors? Do some of these play a more outsized role than others? Imagine a realtor having a list like this with potential buyers and going through each factor. If you put people in a more controlled setting and asked them to decide between potential suburban places to live, is this how they would decide?

I suspect making a decision is less rational than this full list suggests and is more about having a feeling about a particular house, neighborhood, and/or community. They hear from people or they enjoy driving through the community or what they see in a particular residence appeals to them. Of course, different buyers or potential residents might emphasize different factors and still arrive at the same outcome.

How many suburbanites settle for a “bridesmaid suburb”?

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I discovered the term “bridesmaid suburb” used in an Australian context:

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A “bridesmaid suburb” is a second-choice postcode and could become a strategic buying trend as ballooning interest rates bite into borrowing capacity…

“Buyers will still have to consider alternatives or the bridesmaid suburbs to their first preference, possibly not because of price but because of diminished borrowing capacity.

”Bridesmaid suburbs are adjacent to higher-profile neighbouring suburbs. They cost less to buy into but share many similarities to the first-pick suburb next door, including access to public transport routes, schools and major shopping hubs…

“A bridesmaid suburb can still allow you to secure a lifestyle with comparable amenities and appeal, and only a short drive down the road.”

While this is used in Australia- a quick Google search suggests this term has been around there for several years – I wonder if it might also apply to suburbs in the United States. Are there many homeowners who would have preferred to live in the most desirable suburb but could not afford it and so settled in nearby communities? There are several assumptions at work here:

  1. Many people want to live in the most desirable suburbs. If supply and demand is the only factor at work, more people wanting to live in desirable suburbs drives up home prices so much that there is not enough housing. Additionally, my own sense of American suburbs is that some of the most desirable and exclusive suburbs also intentionally limit their housing supply to help maintain their character and status. Are there such suburbs that always stand out above any other location in the region and where most people would want to live?
  2. Suburban homeowners want to max out their borrowing capacity and get the most they can – a more expensive home – through their mortgage. People can borrow up to a certain point decided by lenders, but how many go all the way to the maximum allowed?
  3. The exact community in which you live matters less than the clusters of suburban communities you can access. It is less about a particular zip code and more about a cluster of adjacent zip codes. Suburbia offers driving access to a lot of communities so perhaps you do not have to live in a particular place to enjoy the benefits. At the same time, communities that appear similar on certain factors can be quite different in terms of character and everyday experiences.

Numbers on the reduced inventory of starter homes in the United States

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I have noted the decline of starter homes in multiple posts (examples here and here). Here is recent data from the National Association of Home Builders and the National Association of Realtors about this decline:

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Homes ranging in price from $100,000 to $250,000, the typical cost for an entry-level home, have seen nearly a 28% decrease in inventory from a year ago, says the National Association of Realtors.

And smaller homes are also in short supply. In 1999, 37% of newly-built single-family homes were smaller than 1,800 square feet. By 2020, that share had fallen to 25%, Dietz said.

In comparison, in 1999, 66% of newly-built single-family homes were smaller than 2,400 square feet while in 2020, that share had fallen to 57%.

These are two very important factors for getting into purchasing a home. A lower price means a smaller down payment and mortgage is needed. Smaller homes are cheaper because they have fewer square feet and cost less to construct.

And without this ability to enter the housing market, it will take potential homebuyers longer to enter, if they can enter at all. This precludes them from building housing equity and stepping up to larger or more expensive residences in the future. It limits the ability of people to pursue homeownership, a goal many Americans have.

Tackling both price and housing size will be difficult in many markets where developers, builders, and those in the real estate industry can get more. Yet, here is an opportunity to appeal to an important sector of potential homeowners if solutions can be put into practice.

How many people want to buy the split-levels and Colonial Revivals that need rehabbing in higher-end Chicago suburbs?

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A look at women seeking homeownership suggests they might not be interested in many of the homes in more expensive Chicago suburbs:

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“They are not going to sacrifice,” Spaniak said. “They don’t have the time to rehab. And they want something newer, with quality, that expresses who they are.”

That’s a tall order that often isn’t in line with the split-levels and Colonial Revival houses common in higher-end Chicago suburbs. The scarcity of polished, modern houses in established suburbs further drives up the prices of the few houses that do meet that narrow criteria, Spaniak said.

This is an issue facing many suburban communities and potential homebuyers:

  1. Many existing homes do not have the features, finishes, or architecture preferred by homebuyers now.
  2. More mature suburbs have a limited number of newer homes as new construction is limited to small developments or teardowns.
  3. The housing prices in more expensive and mature suburbs are not that low that it will attract people drawn by fixer-uppers. The people who can buy and rehab homes in the wealthier suburbs have enough capital to buy in and fix or teardown the homes for a tidy profit.

Roughly five years ago, we were in a similar position looking for a larger home. Homes within our price range often needed updating or had disagreeable and unchangeable traits. The style of homes available fit into what is described above: split-levels, raised ranches, ranches, Colonials, and a few older structures. We had time and flexibility so it all worked out but I could see how the available options and at the particular prices available would frustrate some homebuyers.

The factors affecting housing in the Chicago region in 2022

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Several experts suggest housing prices will continue to rise in the Chicago area in 2022 but not at the same rate as they did in 2021:

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Rather, changes in home price growth, the supply of homes for sale and upticks in rock-bottom interest rates are more likely to stabilize the market after an unpredictable 2021, they said. That likely won’t mean an end to competition or high prices — and it doesn’t bode well for first-time homebuyers — but the market could ease up compared with 2021…

In the nine-county Chicago metro area, the median home sale price from January to November was $300,000, up nearly 12% over the same months in 2020, according to the Illinois Association of Realtors…

Prices are likely to rise next year, but won’t continue the exponential growth of 2021, said Daniel McMillen, head of the Stuart Handler Department of Real Estate at the University of Illinois at Chicago. Without an influx of new residents to the area or big increases in incomes, that growth will become unsustainable, he said…

Homebuyers are continuing to look for amenities like home offices and workout areas, Melbourne said. Kitchens are a priority. Condo-buyers are looking for bigger units, rather than one-bedrooms.

The pressure from COVID-19 moves will hopefully subside. Then, the more regular patterns in Chicago area real estate might take over again. There are at least several interrelated factors:

  1. Limited population increases in the Chicago region. This reduces demand.
  2. Uneven development within the region where some neighborhoods and suburbs will be popular and others not. Prices will go up in desirable places.
  3. Construction of new residences has been down. What kind of units will be built? If recent trends hold, it will be housing aimed more at wealthier residents. Additionally, these units will be constructed in some locations and not others.
  4. If there is a long-term shift in what homebuyers and renters want from units, does this significantly shift demand? Continued or more working from home has the potential to affect the individual and collective experience of places.
  5. The particulars of certain communities. Communities understand themselves as having certain characters and prioritize particular goals. Local regulations could incentivize or discourage certain kinds of development.

There are numerous factors affecting housing to pay attention to amid changing conditions.

Sustaining McMansion purchases with low interest rates

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If architecutural critiques of McMansions do not dissuade potential buyers, enticing interest rates might prove persuasive. One Southern California mortgage broker explains:

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Maybe you, too, can afford a Southern California McMansion. How about paying just interest, not principal, at a rock bottom 1.875% mortgage rate for the first three years?

For a $1.5 million loan on a $2 million home, your house payment is locked down at $2,344. Assuming monthly property taxes of $2,083 (1.25% annual property tax rate) and $250 for monthly homeowners’ insurance, your total house payment is $4,677…

If rate and payment uncertainty gives you too much heartburn, you can find longer interest-only lock terms of five, seven or 10 years in the 2% to 3% interest rate range on 30-year mortgages.

Even 30-year jumbo fixed rates are super cheap. I’ve found rates as low as 2.375% for Inland Empire properties, where jumbos start at $548,250. In Los Angeles and Orange counties, where jumbos start at $822,375, rates are as low as 2.625%.

Why buy a McMansion? Because it is relatively cheap due to low interest rates. As the commentary notes, renting a McMansion could be significantly more costly than buying. Since Americans like large houses and this is an expensive real estate market, a large McMansion at reasonable rates may look like a good deal.

At the same time, the idea of even cheaper interest rates for just three years should cause some pause. What happens if interest rates go up? This sort of approach sounds like some of the mortgage options of the 2000s that helped lead to difficulties for some in keeping up with their mortgage.

Another way that McMansions could continue to be an attractive financial option in the future is if their relative value drops compares to other homes. If fewer people want such a home, this might depress values to a point where others who value space or like other McMansion features might be able to get a bargain.

Explaining a low housing supply

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Relatively few homes are available for purchase in the United States:

Sales of existing homes rose a steeper-than-expected 3.5% in December compared with January, according to the National Association of Realtors.

Demand is surging because mortgage rates are about a full percentage point lower than they were a year ago, and the largest generation, millennials, are aging into their homebuying years.

That demand has pushed the supply of homes for sale down 8.5% annually to the lowest level since the Realtors began tracking inventory in 1982…

Sales of homes priced below $100,000 were down 7.7% annually in December, while every other price category saw increased sales. That is because there is so few for sale at the entry level. Investors have been very active in this category, turning these homes into lucrative rentals.

The article cites multiple factors at work: low mortgage rates, older millennials looking to purchase properties, and a decreased supply of cheaper homes (in part because of investors looking for rental properties).

I am curious about two things the article does not mention:

1. Who are all the actors involved in these trends? Mortgage rates are down – because federal interest rates are low? How are lenders reacting to this? Millennial homebuying might be up – what do the trends look like for other groups (particularly since homeownership is not necessarily high)? How are policymakers reacting to this shortage, particularly when affordable housing is a major concern in many markets?

2. This seems like an opportunity for builders and developers: the supply is low, people want homes. How are builders responding? According to the Census, new housing construction is trending up in the last few years:

NewResidentialConstructionDec19

These converging actions and trends bear watching in a country devoted, at least in ideology, to homeownership.