Trust This. Rates Drop, Prices High — Down Pay Woes — Crew or Fam?

Trust This.

By Joseph E. Seagle, Esq. ● Nov 01, 2024

Smart Brevity^® count: 5.5 mins…1417 words

👋 Happy Friday! You have my permission to take today off if you ate too much 🎃 Halloween 💀 candy 🍭 last night.

Situation Awareness: This is the last edition before Election Day next Tuesday. Remember to vote. When next week’s edition of Trust This arrives, may your inbox be less cluttered with campaign donation requests.

1 big thing: Homebuyers facing issues in spite of lower rates

The Federal Reserve’s recent interest rate cuts are giving some relief to prospective homebuyers, but elevated home prices continue to pose a significant barrier.

• Despite a dip in mortgage rates in the third quarter, home prices remain high, up 5.9% compared to last year.

• The lack of available housing inventory drives this price growth, leaving many buyers feeling the pinch even as mortgage rates ease.

Why It Matters: The current market presents a jam for real estate investors and industry professionals.

• While falling mortgage rates might encourage some to re-enter the market, the persistent rise in home prices limits affordability.

• This “lock-in effect” stems from homeowners unwilling to give up their existing low-interest mortgages, further constraining housing supply.

• Investors should expect continued demand pressure, but with affordability remaining a key obstacle, buyers will likely remain cautious.

Driving the News: According to Fannie Mae’s data, the price growth slowdown in the third quarter from the second quarter’s 6.4% rise is a sign of some moderation, but it’s not enough to offset the affordability crisis. Additionally, existing home sales are trending toward their lowest level since 1995, signaling deep buyer hesitation.

What They’re Saying: Fannie Mae’s Senior VP Mark Palim noted that while some relief has arrived with lower rates, the market is still significantly constrained.

• He highlights the importance of inventory, as homeowners are reluctant to sell and face higher rates on their next property.

• Redfin economist Elijah de la Campa advises buyers not to wait for perfect timing, given the market’s volatility.

What’s Next: With mortgage rates fluctuating, pending home sales did see a 3.1% year-over-year jump in September.

• However, real estate pros should anticipate uneven activity.

• As the economic landscape evolves, including upcoming employment reports and political shifts, the market could face further twists.

The Bottom Line: Pricing and timing will remain critical challenges for those managing real estate portfolios. The interplay between lower mortgage rates and high home prices means opportunities will be selective, and navigating this environment requires strategic planning.

Go deeper: The Orlando Business Journal (paywall)

2. Lower home sales affecting down payments

The Orlando housing market, like many others across the U.S., is facing stagnation in home sales as affordability issues rise. Elevated mortgage rates and increasing home prices are creating a bottleneck for buyers and sellers alike, impacting business strategies for real estate professionals and investors.

Driving the News: A recent analysis by Realtor.com reveals that the average down payment in Q3 dropped to 14.5% (median $30,300) from 14.9% in the previous quarter. Although this marks a decline, it is still significantly higher than the pre-pandemic levels, where down payments averaged 10.9%.

• Home sales have flatlined, dropping 1% in September compared to the previous month.

• Affordability is a core issue as home prices continue to rise, with the median price now at $404,500, up 3% from last year.

• The “lock-in effect” is also keeping potential sellers from listing their homes, with 86% of homeowners enjoying mortgage rates under 6%, a stark contrast to today’s 7% range.

Why It Matters: For entrepreneurs and real estate professionals, this slowdown in home sales and slight dip in down payments present both challenges and opportunities. Despite the challenges, there are potential opportunities to be explored. Key takeaways include:

• Fewer Transactions: Home sales are slowing as potential buyers are priced out of the market or waiting for mortgage rates to drop further. This decline in activity could impact real estate agents, brokers, and mortgage lenders who rely on volume-driven business.

• Down Payment Adjustments: While down payments have eased slightly, affordability remains a challenge for first-time buyers, who are particularly sensitive to mortgage rates and home price fluctuations.

• Geographic Disparities: States in the Northeast and Midwest, which have seen less homebuilding compared to high-growth regions like Texas and Florida, continue to experience more competitive markets. For investors, these regions may offer fewer opportunities for high turnover but might be more stable due to limited inventory.

The Bottom Line: As mortgage rates remain elevated and housing affordability pressures persist, entrepreneurs and real estate professionals must adjust strategies to navigate the slower sales pace. Focusing on markets with fewer affordability concerns and maintaining flexible financing options for buyers could help mitigate the impacts of this cooling market.

Go deeper: Orlando Business Journal

This week’s Trust This podcast conversation is with John Chin who explains how successful real estate agents and brokers embrace real estate investors and know the creative deal and financing strategies that their closings often require.

Listen in or watch on your favorite streaming platform.

3. Catch up fast

1. Where Democrats and Republicans are moving. New York Times (gift link)

2. Nearly one-fourth of first-time homebuyers are holding off on their purchases to see how the elections go next week. Redfin

3. According to a survey of economists, American wealth will grow either way under Harris or Trump, just in different areas of the economy. Bloomberg (gift link for 7 days)

4. Dems and GOP agree that the state of U.S. retirement savings is concerning. HousingWire (paywall)

5. Swing state home prices mirror red state prices more than blue states’ Realtor

4. Closing Thought: Family, Flock, or Crew?

OJ is part of the family. Definitely adopted.

We’re a crew; not a family. I’ve not adopted anyone here, and we will fire you if you’re not a fit.

Why it matters: That’s a synopsis of what I said in my closing comments at our recent all-hands quarterly town hall meeting.

Being a company that runs on EOS, we have a quarterly meeting of our leadership team, followed a week or two later (much later this quarter because of the hurricanes) with a town hall where we lay out what was discussed and decided at the quarterly.

• We go over our mission and core values.

• We discuss our financial status.

• Which rocks (projects) were successful and which ones weren’t in the previous quarter.

• We outline and explain the new rocks that we will be working to complete in the new quarter.

• We have a question and answer session, and then the visionary (yours truly) gives a final comment to wrap up the meeting.

We had just discussed the importance of transparency among ourselves and with our clients, so I figured it would be appropriate to be totally transparent and explain why I use the word “crew” when talking about all of the company’s employees, and “team” when speaking about the various teams inside the crew.

• I also explained that crews, like a ship’s crew, have a command structure and will remove members who can’t do the job required.

• The crew laughed, and it’s been brought up several times since then.

I discovered since then that this is a pretty hot topic in entrepreneurial circles.

• Is your business a “family”? or

• Is your business a crew?

One colleague calls his firm a “flock,” because — like a flock of geese, there’s the lead goose and the followers.

• If a goose can’t make it, they all land and try to help.

• But if the sick or injured goose can’t make it, the flock leaves it behind and moves on with the journey.

• Not very much like a “family,” is it?

The bottom line: Paying attention to details as little as how you describe your company and its employees, whether as a family, flock, or crew is just the tip of the iceberg of things that entrepreneurs should carefully consider.

• Being aspirational is admirable, but being realistic and transparent is invaluable. It goes a long way to setting the stage of your relationship with and expectations of your employees — and their view of your role in their life.

We hope you found this helpful — any feedback is appreciated and can be shared by hitting reply or using the feedback feature below.

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