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Trust This.
By Joseph E. Seagle, Esq. ● Oct 18, 2024
Smart Brevity® count: 5 mins…1265 words
👋 Happy Friday! Today is National 🧁 Chocolate Cupcake 🧁 Day.
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1 big thing: Housing affordability improves
According to the latest First American housing affordability report, housing affordability has improved for the first time post-pandemic
Why it Matters: For the first time since 2021, national housing affordability has improved on an annual basis. This marks a critical shift for real estate professionals and investors as the market emerges from the post-pandemic squeeze, offering new opportunities for prospective homebuyers and investment strategies.
Affordability on the Rise: In August 2024, national housing affordability rose by 4.4% compared to the previous year.
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This positive change was driven by two key factors: a 3.1% increase in household income and a slight 0.57% drop in the 30-year fixed mortgage rate.
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Despite nominal house prices continuing to rise, the pace of appreciation has slowed, making homes more affordable.
Looking Ahead: The report forecasts further relief for buyers if mortgage rates drop to around 6% by year-end.
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With wage growth normalizing and house prices stabilizing, affordability could see an additional 7% improvement by the close of 2024.
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Real estate investors should be attuned to this trend as it may signal a resurgence in buyer demand.
Federal Reserve Impact: The Federal Reserve’s recent half-point rate cut has begun to ease market conditions.
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The Fed anticipates more aggressive cuts, potentially dropping rates to 3.4% by the end of 2025.
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This creates a favorable long-term outlook for the housing market, as lower mortgage rates could further boost affordability.
State and Regional Variances: While national affordability is improving, regional disparities remain stark.
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States like Colorado and Oregon saw the greatest decrease in real house prices, with Colorado experiencing a 12.5% drop.
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Conversely, Illinois and New Jersey posted modest price increases, a potential signal for investors targeting these regions.
The Bottom Line: As mortgage rates are projected to ease and incomes rise, real estate professionals should watch for a potential uptick in market activity. For those waiting on the sidelines, the coming months could offer a rare window of opportunity in an otherwise expensive housing market.
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2. Housing Market’s Broken Promises
The U.S. housing crisis continues to deepen, and the solution may not come from market forces alone, according to a recent Harvard Business Review essay by Brian Callaci and Sandeep Vaheesan.
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The authors argue that relying solely on market-based solutions, such as deregulating zoning laws or removing government oversight, will not resolve the crisis.
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Instead, they advocate for stronger public intervention to address the systemic issues exacerbating the problem, including the market power of landlords, algorithmic rent-setting, and a lack of affordable housing.
Why it matters: Real estate investors, REALTORS®, and title insurance agents should take note of these growing calls for intervention. The policies discussed in this essay could have a profound impact on how they operate in the future.
Key Takeaways:
Market Power of Landlords: One of the central issues identified is the monopolistic power of landlords, exacerbated by the use of algorithmic pricing software like RealPage.
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This tool allows landlords to set rents collectively, driving prices higher while keeping occupancy rates low.
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If antitrust enforcement tightens, we may see restrictions on such practices, which would affect rent prices and investment returns in rental markets.
Public Governance Over Market Deregulation: The essay counters the popular notion that deregulation will lead to more affordable housing.
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While zoning reforms may increase housing supply slightly, they often fail to meet the scale needed to solve the crisis.
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For REALTORS® and developers banking on zoning changes to boost property development, this analysis suggests that larger governmental involvement—like rent caps and increased public housing—could curb market-driven profits in some areas.
Regulation on Algorithmic Rent Setting: As algorithmic rent-setting practices face legal challenges, large-scale real estate investors may find themselves restricted in their ability to maximize rental profits. REALTORS® working with institutional clients should prepare for potential regulatory changes that could affect large-scale property portfolios, particularly in cities where rent increases have outpaced inflation.
Public Housing as a Competitive Force: The authors call for the government to step in and provide more affordable housing. For title insurance agents and REALTORS®, this shift toward publicly built or regulated housing could change the landscape of real estate transactions, introducing more competition from the public sector and affecting private development opportunities.
The bottom line: The real estate market as we know it may face significant changes if the solutions proposed in this essay take hold.
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Real estate professionals must stay informed about policy shifts that could impact their business models, from restrictions on rent increases to new public housing initiatives.
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The future of the housing market might involve a delicate balance between profit and public interest, leaving real estate professionals to navigate uncharted territory.
For real estate professionals, the essay underscores a crucial message: The housing crisis isn’t just a regulatory issue but a systemic one. Prepare for a landscape where government intervention could become the norm.
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Get your tickets here.
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3. Catch up fast
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Zillow to start showing climate risk data on home listings. Washington Post (gift link)
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Florida insurance carriers used altered hurricane damage reports, whistleblowers say. 60 Minutes via YouTube
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All the ways that climate change is making Florida housing more expensive will give you a migraine. Bloomberg (gift link)
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Insurance ‘nightmare’ unfolds for Florida homeowners after back-to-back hurricanes. NBC News
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Don’t be a sucker. National Archives via YouTube
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4. Closing Thought – Cure Five Dysfunctions of a Team
Milton didn’t flood the dock nearly as much as Ian did two years ago.
Patrick Lencioni’s book, The Five Dysfunctions of a Team, outlines key barriers to team performance that many business owners face.
Why it matters: Recognizing and addressing these dysfunctions is crucial for long-term success.
The Five Dysfunctions:
1. Absence of Trust
Teams with low trust avoid vulnerability, making it difficult to build a solid foundation. Collaboration breaks down if team members aren’t comfortable admitting mistakes or asking for help.
2. Fear of Conflict
Avoiding constructive conflict prevents teams from debating ideas openly. Without healthy debate, innovation stalls, and issues are swept under the rug, festering over time.
3. Lack of Commitment
When team members don’t weigh in on decisions, they often fail to buy in. Lack of clarity on goals and direction results in indecision, paralysis, or misalignment.
4. Avoidance of Accountability
Without clear expectations and the courage to hold each other accountable, poor performance or missed deadlines go unchecked. This erodes team morale and trust.
5. Inattention to Results
Progress is compromised when individuals prioritize personal success or status over the team’s goals. The focus should be on collective achievements, not individual gains.
The bottom line:
To counteract these dysfunctions, business owners must:
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Foster trust by encouraging transparency and vulnerability.
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Embrace conflict as a way to enhance creativity and problem-solving.
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Set clear goals and ensure every team member has a voice in decision-making to build commitment.
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Establish a culture of accountability where team members regularly review performance.
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Keep the team focused on shared results rather than individual success.
Next steps:
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Carry out regular check-ins, encourage open dialogue, and set measurable goals to reinforce team cohesion. Oh, and reading the book wouldn’t hurt either.
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Be on the lookout for our next issue! 👋
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