Shaina Mishkin
A landmark court settlement over real estate commissions will usher in changes to the housing market. The new rules won't tame high home prices this summer -- but other market forces could, like mortgage rates and a growing supply of homes for sale.
The rules, which provide buyers with more transparency in how their agent is paid and are bound to shake up the housing market's landscape, are set to kick in on Aug. 17. Some changes are already taking place: Agents are offering piecemeal services for lower fees, builders are evaluating their ability to offer smaller or flat fee payments to agents, and new businesses designed to profit from the changes, such as AI buyers' agents and separate platforms for advertising commissions, are popping up. You can read more about navigating the rules in Barron's guide for buyers and sellers.
The revisions will also change the economics of the housing market. Negotiations over buyers' agent fees will be more common, ultimately lowering the cost of representation. The changes "will create more competition, which ultimately will mean lower commissions and more choice," says Mark Zandi, chief economist of Moody's Analytics.
The number of agents is likely to fall as less productive agents leave the field. "Selling one house a year probably shouldn't sustain someone, " says Laurie Goodman, the founder of the Urban Institute's Housing Finance Policy Center, adding that the decline will be slow and dependent on how far commissions ultimately drop. But in a competitive market, any savings on buyers' agent commissions are more likely to wind up in sellers' pockets than as a discount on a home price.
Other issues might crop up but on the margin. Some home sales could fall through if buyers and sellers can't come to terms. Sellers who won't pay buyers' agent fees could see their homes sit on the market, necessitating price cuts. And buyers may find themselves on the hook for paying their agent's fee out of pocket, heightening the housing market's barrier to entry.
What the rules probably won't do: drive down still-high home prices, which are largely the result of a lack of supply relative to demand. "It's not going to show up in price -- at least not to a significant degree; at least not quickly," says Zandi. That's because other macroeconomic factors fueling supply and demand, such as mortgage rates, will have more sway on the trajectory of home prices. These factors are pointing at slowing home price growth in the coming year as the number of listings creeps up, homes sit on the market for longer, and some sellers reduce prices.
Home prices will rise 4.3% by the end of 2024 and then slip to 3.2% in 2025, according to a Fannie Mae survey of over 100 housing market experts. Home listings are expected to increase as the impact of the so-called mortgage rate lock-in effect weakens, leading to slower price growth.
Higher mortgage rates dampen selling activity by both pricing some buyers out of the market and reducing the incentive for homeowners to sell, an occurrence known as the mortgage rate lock-in effect. Mortgage rates have remained near 7% this spring as bond traders have grown more hawkish on the outlook for Federal Reserve interest rate cuts.
If mortgage rates remain high -- and forecasters broadly expect them to remain above 6% through much of 2025 -- sellers could blink before buyers. Some homeowners sell for nonfinancial reasons, such as death or a necessary relocation, while home builders will continue to build new houses. The end result is more homes for sale, while price-conscious buyers continue to wait to enter the market.
Already, total inventory is at its highest level since late 2022, a Realtor.com analysis of National Association of Realtors and Census Bureau data through April show. The share of sellers who cut asking prices was at its highest level since November 2022 in the four weeks ended June 2, according to Redfin. The typical home now sits on the market for 46 days, up 2.3% from the year prior.
"The market is still leaning toward a seller's market, but has gained balance since the red-hot pandemic," Hannah Jones, a Realtor.com economic research analyst, told Barron's. ( News Corp, which owns Barron's, also owns Move, which operates Realtor.com.)
Should supply expand before mortgage rates drop, home price gains look set to peter out. Zillow estimates home values sinking 0.9% below 2024 levels next spring. Moody's Analytics foresees price growth slowing to 1.5% by the end of the year before stagnating in 2025.
More homes on the market would give buyers more leverage -- and allow those who have secured lower agent commissions to argue for concessions from sellers at the bargaining table. But don't expect a huge or immediate discount.
"Over time, as the market normalizes, it might [impact home prices] a little bit," says Moody's Zandi. "But we're talking on the margin."
Write to Shaina Mishkin at shaina.mishkin@dowjones.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
June 09, 2024 02:00 ET (06:00 GMT)
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