Nov. 4: Thoughts on the job market; how can a low down payment buyer afford the commission? Redfin CEO on the NAR verdict

After most states, except Arizona and Hawai’i, move their clocks back tonight, I head to Dallas tomorrow for the TMBA Education Symposium. Yes, rates dropped this week, but no one in our biz, especially those pragmatic folks in Texas, will deny that it is a tough environment, even for individuals and companies that saved their record earnings from 2020 and 2021. Especially as those gravy years fade into the past, and servicing portfolios are sold off. Mergers and acquisitions (big, grabbing headlines, and small, barely noticeable) are a topic, as is the NAR lawsuit which we can now follow through the expected numerous appeals (more below). And let’s not forget the spread between mortgage and U.S. Treasury rates. Fortunately, we had some good news this week as global bond markets rallied this week, raising prices and dropping rates, while the U.S. stock market saw its best day in six months. Investors digested signals that the Federal Reserve and other central banks’ rate-hike cycles are nearing an end. The yield on the 10-year US Treasury saw its biggest two-day decline since the banking-sector turmoil in March. Rising confidence that the Federal Reserve’s interest rate hikes have peaked led to a slump in the dollar as investors begin to embrace riskier assets. More below on the job market!

NAR news

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A buyer having to come up with 2-3 percent of the purchase price may hit first-time and underserved buyers the hardest. Many are already using down payment assistance programs… Now what? Experienced loan officers view this as yet another opportunity to help clients and verbally explain what is going on to a potentially confused borrower.

The verdict will be appealed for quite some time. Meanwhile, the various industries that touch real estate are reacting, including the management of real estate companies that are already considering different commissions structures.

From the appraisal ranks came, “As a 30 plus year career real estate professional, specifically in the valuation space, I have to say ‘Thank God’ NAR finally got its hat handed to it in Missouri. There have been instances in the past, but this one looks fatal. It only gets exponentially bad for them nationwide now.

“This is an organization that has spent over 100 years manipulating state governments to pass regulatory statutes that are clearly monopolistic under the guise of some form of public service to regulate and maintain order in what should be a free market system. Then on top of that they implement fee fixing and claim that a ‘Realtor’ has some expertise in legal contracts. Anyone can fill out a sales contract. Just check a few boxes and you’re done.

“The GSEs and Congress built guardrails with many statues a long time ago. But this organization is built on greed and steering. The worst part is the steering of customers into homes that make the agent more money. That’s fraud.

“I relish the thought that appraisers and other users can hopefully not have to pay a subscription fee for public information. I also relish a future where you’re not forced to list your home on a system so you can pay someone 6 people to open a door and tell a potential buyer about the beautiful hardwood floors and amazing quartz countertops. I have eyes and I know what I like.

“Good riddance.”

Also crossing my proverbial desk was an opinion piece on what the NAR antitrust ruling means for builders. “Agents aren’t going away any time soon, but the ruling signals significant change ahead for the way new homes are sold.

“The National Association of Realtors’ (NAR) antitrust verdict will have a profound effect on how homes are bought and sold. The trial saw NAR and major real estate companies unsuccessfully defend themselves in an antitrust case. The judge ruled they collectively conspired to drive real estate commissions higher and levied a fine just north of $1.7 billion, which could be tripled under antitrust legislation.

“Will there be changes to the way commissions are handled in the future? Undoubtedly, although most changes won’t happen overnight. This is everyone’s opportunity to prepare for what’s coming. The Best Agents Will Continue to Be the Best…”

Glenn Kelman, CEO of Redfin, owner of mortgage lender Bay Equity, has thoughts. (Recall that Redfin withdrew from NAR a month ago.) “A jury issued a verdict in the Sitzer-Burnett federal class-action lawsuit finding that the National Association of Realtors and major real estate franchisors conspired to inflate real estate commissions, by requiring home sellers to offer a commission to the agent representing a buyer, as a prerequisite to listing their property. The jury awarded damages of $1.8 billion to the plaintiffs, who are based in Missouri. There is a similar lawsuit representing plaintiffs in Illinois, seeking damages of $40 billion. The Department of Justice has also been closely watching these cases.

“The size of the verdict has already led, in just the past few hours, to at least one copycat lawsuit, with plaintiffs in other states, and with every major brokerage named as a defendant, including even Redfin. As a company that exists to give real estate consumers a better deal, Redfin is proud of our unwavering consumer advocacy. Redfin has saved our clients more than $1.5 billion in fees.

“For many years, recently and in the distant past, we offered an online service for people to buy homes unrepresented. Prior to this verdict, we announced our resignation from the National Association of Realtors. For our entire history, at Congressional hearings, in press appearances, in sensationalized debates, and in public and private industry meetings, we’ve campaigned tirelessly for lower fees, commission transparency, and broader consumer access to real estate listings. When I first used Redfin to list my own property, our yard sign was felled by a chainsaw, presumably in opposition to our stand on fees. Every day to this day, Redfin agents are denigrated by other agents as discounters.

“Even if the judge doesn’t require structural change, structural change is coming. The judge may take days or weeks to decide what structural changes the jury’s verdict will entail. There will also be years of appeals about the legal standard used in the case and other issues. For now, the initial size of the damages alone will ensure major change. In the weeks leading up to the verdict, the National Association of Realtors already updated its guidelines to let agents list homes for sale that don’t offer a commission to the buyer’s agent.

“Traditional brokers will train their agents to give sellers all their options. Traditional brokers will undoubtedly now train their agents to welcome conversations about fees, just as Redfin has been doing for years, especially when advising a seller on what fee to offer to buyers’ agents. Rather than saying that a fee for the buyers’ agent of 2 or 3 percent is customary or recommended, agents will say that a buyers’ agent fee, if one is offered at all, is entirely up to the seller. This is as it should be.

“But a bigger change may be afoot: Buyers pay the buyer’s agent. It’s also possible that buyers will become the ones who decide how much to pay a buyer’s agent. Even without a judge’s injunction, the local Multiple Listing Services that agents use to list homes may decide to stop supporting cooperation between buyers’ and sellers’ agents on fees. In this event, many buyers will still hire a buyer’s agent, but at a fee they negotiate, constrained in part by the buyer’s heightened awareness of the fee, but also because the fee may not be a part of the home price, which has long been financed by a mortgage.

“More significant change is also possible. Industry observers who imagine that American real estate could easily become like Great Britain, New Zealand, or Australia, with one agent representing both buyer and seller, haven’t noticed what Redfin learned through painful experience in our earliest years: American consumers, long accustomed to the convenience of a buyer’s agent who can show all the homes for sale, dislike calling different listing agents to see different properties.

“Buyers should be able to choose whether to hire an agent at all. But some may ask what will happen if this case, or if one of the cases that follow, ends cooperation, so that it becomes cost-prohibitive for many homebuyers to hire an agent at all. Redfin’s position is that no one should hire a buyers’ agent who doesn’t want to; people should hire buyers’ agents to see properties listed by a wide range of agents, to get guidance on how home-buying works, to understand the advantages and defects of the homes they’re buying and the deals they’re striking. Buyers can choose to work directly with a listing agent if they seek to avoid the fee paid to a buyers’ agent, and if they understand the tradeoffs involved.

“It’s hard to say whether the future will bring reformed cooperation, where the commission paid to the buyers’ agent is optional, negotiable, and open for all to see, or if cooperation ends entirely. Either way, Redfin will be ready. Since Redfin uses technology to operate more efficiently than just about any other major broker, with a national, low-cost home-touring service already in place, we’ll be better prepared for this future than any other broker.

“But if buyers’ agents become less common, Redfin will prosper in that world too. We run the largest brokerage website in America. We’ve built self-service technology for buyers to set up their own tours and to make offers. We’ll use that technology to market the properties listed by our agents directly to consumers, taking market share from other brokerages. We may open that platform to other listing agents who work with us as partners.

“Change, in whatever form it takes, can be painful for many industry incumbents, but it could be good for consumers, good for innovators, and good overall. I spent the first year or two of my now-18-year Redfin career proclaiming every other month that a revolution was at hand, only to discover how impervious to change our industry is. No matter what happens with the Missouri judge, or in any other courtroom, one thing is certain: there’s no going back to the way things were. What Redfin wants in this uncertain world is what we’ve always wanted: to give real estate consumers a better deal.”

The jobs market

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MBA MVP, uh, VP, and Deputy Chief Economist Joel Kan reacted to Friday’s U.S. Bureau of Labor Statistics report on employment conditions in October. “The job market continued to fare reasonably well in October but showed signs of weakening: There was a slowing in the pace of job growth, hiring is occurring across fewer industries, and previous months’ numbers were revised lower. While the job market remains generally resilient, inflation is still the key metric for the Fed as it weighs the policy path over the next few months. We continue to expect them to hold the fed funds rate at its current level until 2024, when their next rate move is likely to be a cut.

“Regarding housing, construction hiring increased for the seventh consecutive month, and the sector has added 148,000 jobs so far this year. Low levels of pre-owned housing inventory have pushed prospective buyers to new homes, increasing the need for workers, while owners staying in their current homes continue to invest in home improvement projects and repairs. A strong job market is nevertheless supportive of the housing market, both in terms of home buying and mortgage performance.”

NAR Chief Economist Lawrence Yun, unscathed by the verdict this week, had this to say. “The Federal Reserve will be pivoting from raising interest rates to current neutral to eventually cutting interest rates next year. The job market has slowed measurably. The latest monthly job gains of 150,000 in October are one of the weakest in the past three years. The unemployment rate rose to 3.9%, close to a two-year high. Wage gains also slowed to 4.1%, compared to nearly 6% last year, which will lower inflationary pressures. The bond market is reacting as if the Fed will be cutting rates in 2024. The key benchmark 10-year Treasury yield slid down to 4.55% and is below a recent high of 5%. That means mortgage rates will be coming down.

“The 30-year fixed rate will stick in the 7% range for this year but looks to move down into the 6% range by the spring of next year. Moreover, if the spread between Treasury and mortgage were to move from the current abnormal high to just the historical average, the mortgage rates today would already be in the 6.2% to 6.7% range. Be ready for more home buyers and more home sellers.”

The King & the weatherman

The King wanted to go fishing, and he asked the royal weather forecaster for the forecast for the next few hours.

The palace meteorologist assured him that there was no chance of rain.

So, the King and the Queen went fishing. On the way he met a man with a fishing pole riding on a donkey, and he asked the man if the fish were biting.

The fisherman said, “Your Majesty, you should return to the palace! In just a short time I expect a huge rainstorm.”

The King replied: “I hold the palace meteorologist in high regard. He is an educated and experienced professional. Besides, I pay him very high wages. He gave me a very different forecast. I trust him.”

So, the King continued on his way.

However, in a short time, torrential rain fell from the sky. The King and Queen were totally soaked.

Furious, the King returned to the palace and gave the order to fire the meteorologist.

Then he summoned the fisherman and offered him the prestigious position of royal forecaster.

The fisherman said, “Your Majesty, I do not know anything about forecasting. I obtain my information from my donkey. If I see my donkey’s ears drooping, it means with certainty that it will rain.”

So, the King hired the donkey.

And so began the practice of hiring dumb asses to work in influential places.

The practice is unbroken to this day.

Visit www.robchrisman.com for more information on our industry partners, access archived commentaries, or to subscribe to the Daily Mortgage News and Commentary. If you’re interested, visit my periodic blog at the STRATMOR Group web site. STRATMOR’s current blog is titled, “Mind the Down Payment.” The Commentary’s podcast is live and at any place you obtain your podcasts (like Apple or Spotify).

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(Market data provided in partnership with MBS Live. For free job postings and to view candidate resumes visit LenderNews. This newsletter is for sophisticated mortgage professionals only. There are no paid endorsements by me. For up-to-date mortgage news visit Mortgage News Daily. For archived commentaries, or to subscribe, go to www.robchrisman.com. Copyright 2023 Chrisman LLC. All rights reserved. Occasional paid job & product listings do appear. This report or any portion hereof may not be reprinted, sold, or redistributed without the written consent of Rob Chrisman.)

Rob Chrisman