Weekend Talking Points - 'FAQs'

Jobs growth was slower than expected in April. That cheered up the bond market and helped send average 30-yr mortgage rates back down toward 7.2%. The national inventory of homes for sale continues to rise, but prices keep surprising to the upside.

New NAR settlement implementation date: Aug 17. The NAR published an extensive FAQ explaining how the proposed settlement will be put into practice. You should absolutely read the original document, but I’ve summarized what I thought was important below.

Finally, a jobs number the bond market liked! According to the BLS, the US added 175K jobs in April. That was the lowest figure in 6 months AND was well below expectations. The unemployment rate also rose to 3.9% (from 3.8%). [CNBC]

Mortgage rates reacted rapidly. The yield on the 10-year US treasury dropped from near 4.6% to 4.45% in the wake of the BLS jobs report, and average 30-year mortgage rates fell from near 7.4% to 7.2%.

Unemployment claims rise unexpectedly. The weekly new claims for unemployment benefits rose 10% week-over-week to 231,000. This is notable because: 1) the weekly claims data had been implausibly ‘stuck’ at around 200,000 for months, and 2) it’s the highest weekly figure in 8 months.

Home price growth keeps surprising. For seven months in a row, the actual monthly home price growth has exceeded CoreLogic’s own forecasts, often by a wide margin. In January, CoreLogic forecast flat prices for February. Instead, they rose 0.7% MoM. In February, CoreLogic forecast prices would rise 0.4% in March. Instead, they rose 1.2% MoM. [CoreLogic]

Inventory keeps rising. I’ve been watching inventory very closely, with a particular focus on Florida and Texas (those two states alone represent nearly one-third of nationwide inventory). The Realtor.com data just came out for April 2024 and it showed that nationwide active inventory was up 6% MoM and 30.4% YoY. Florida’s statewide inventory rose 2.6% MoM and is now up 64% YoY.

April’s hottest housing markets. I like this report from Realtor.com, but it’s beginning to sound like a broken record: all Top 20 spots were taken by Northeastern or Midwestern metros. Nashua-Manchester, NH was #1 again. Within the Top 20, 6 metros saw inventory FALL YoY, 13 saw inventory rise (but less than the national average of 30% YoY), and 1 (Eau Claire, WI) saw inventory rise faster than the national average. [Realtor.com]

Unemployment Rates and Recessions

The unemployment rate has risen from a low of 3.4% in January 2023 to 3.9% in April 2024. I know what you’re thinking: “That’s not much of an increase, and the UR is still really low! I see no recession signals here!”

Take a close look at the graph below, noting the gray bars (which indicate recessions). Two important observations can be made:

1. Recessions almost always start when the UR is low. If that sounds backwards, think about it this way: it is the recession (falling economic activity) that drives the unemployment rate higher. A low UR does not inoculate an economy against recessions.
2. It doesn’t take much of an increase to signal a recession. The rule of thumb is that a 0.5% increase (half a percent) in the UR from its recent lows is enough. Do you see how the UR usually has a little curl up just before a recession starts? Well, the UR is up 0.5%.

The Sahm Rule: To be precise, the Sahm Recession Indicator says that a recession has started when the 3-month moving average of the UR has risen by at least 0.5% relative to its lows during the previous 12 months. In April 2022, the 3-month MA of the UR was 3.50%. In April 2023, it was 3.87%. That’s +0.37%. So we’re not quite there yet.

Just the FAQs, Ma’am

I’ve read through the entire NAR Settlement FAQ and have summarized what I think were the most important points. This is just a summary of what NAR wrote. I’m not making any value judgements here about the merit of the case, the settlement itself etc.

The Big Picture

• The settlement does not imply that the NAR/brokers have admitted any wrongdoing.
• “NAR continues to believe that offers of compensation help make professional representation more accessible, decrease costs for home buyers to secure these services, increase fair housing opportunities, and increase the potential buyer pool for sellers.”
• The court gave preliminary approval to the settlement on 4/24/24. Final approval hearing scheduled for 11/26/24.

Implementation Date Change

• Was “mid-July”, now Aug 17. Why?
• It’s basically just a procedural thing.
• Settlement is supposed to be implemented no later than the date of the class notice.
• The earliest date for that class notice is now Aug 17.

MLS Policy Changes

• Eliminate and prohibit offers of compensation on the MLS. [Previously this was required.]
• Eliminate all broker compensation fields and compensation information from the MLS.
• Thus, no ability to filter MLS listings for offers of compensation.
• MLS cannot create or support an alternative, non-MLS mechanism where these offers could still be aggregated and found.
• Require compensation disclosure to sellers and prospects.
• Require MLS participants “working with” a buyer to have a written agreement in place prior to touring a home etc.

Offers of Compensation

• Buyer brokers will obviously not work for free, but using the MLS to communicate offers of compensation is over.
• Examples of ways buyer brokers can be paid:
• Fixed fee or fixed % paid directly by buyers
• Concession from seller
• Offer of broker compensation [But only OFF-MLS, “through negotiation and consultation with real estate professionals”]
• Ultimately, it’s all negotiable.

NOTE: On IDX broker websites, MLS data feeds can be augmented with offers of compensation to buyer brokers but only for listings from their own brokerage.

Written Agreements

• MLS is responsible for enforcing the rule for written agreements. [But MLS not required to keep a copy of those agreements]
• A written agreement must be in place if the agent is “working with” a buyer.
• A written agreement DOES NOT necessarily mean an agency agreement.
• MLS participants and buyers can still enter any type of contract permitted by state law.
• “Working with” a buyer doesn’t mean just talking with them — at an open house, for instance.
• It means identifying potential properties for purchase, touring homes listed on the MLS (includes guided virtual tours), negotiating terms etc.
• An agent or sub-agent of the seller is not “working with” a buyer.
• Authorized dual agents DO “work with” the buyer, of course.

Terms of the Written Agreements

NAR policy does not dictate:

• What type of relationship the professional has with the potential buyer (agency, sub-agency, transactional, customer)
• The term of the agreement (how many months, # of homes they can see, # of zip codes covered etc.)
• The services to be provided (showing homes, negotiating terms with seller etc.)
• The compensation charged ($ value, % value, hourly rate etc.)

NOTE: Compensation terms cannot be “open-ended” in the agreement. They must be clearly defined and “objectively ascertainable”.

Seller Concessions

• As mentioned earlier, seller concessions are still allowed on the MLS.
• MLS retain local discretion.
• However, the MLS “must ensure that the seller concessions are not limited to or conditioned upon the retention of or payment to a cooperating broker, buyer broker, or other buyer representative.”
• In other words, seller concessions can’t just be dressed-up offers of compensation to buyer brokers. That would obviously go against the terms of the settlement.

Hope that was helpful. I’ve got a presentation version of the above if you’re interested.

Mortgage Market

Average 30-year mortgage rates have dropped from over 7.5% to near 7.2% during the past two weeks. Two main reasons for that:

1. Jerome Powell effectively taking further rate INCREASES off the table
2. The lower than expected BLS jobs numbers (and higher UR).

I’d also add that (prior to this move) the bond market looked “oversold” from a technical point of view.

Current odds on Fed rate cuts at upcoming FOMC meetings:

• Jun 12: 9% (steady from last week)
• July 31: 31% (up from 28% last week)
• Sept 18: 66% (up from 54% last week)
• Nov 7: 77% (up from 67% last week)

They Said It

“Home prices increased again this March beyond the typical seasonal uptick, despite mortgage rates reaching this year’s high and the affordability crunch continuing to keep many prospective buyers on the sidelines.

Even with the long-anticipated break in for-sale inventory, the surging cost of homeownership, further fueled by rising insurance and tax expenses, is holding potential home sales back, as is evident in the slow rise in sales compared with last year. These price pressures reflect the overall supply-and-demand mismatch, as well as continued interest from households with larger budgets.” — Dr. Selma Hepp, CoreLogic’s Chief Economist

‍