The Big Story
End of an era: What’s next for agent commissions?
Quick Take:
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The National Association of Realtors® (NAR) settled a major lawsuit in March. It’s still too early to tell exactly how real estate will be affected, since the courts have yet to approve the settlement, but we’ll shed some light on what’s happening.
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Mortgage rates fell slightly in March, closing the month at 6.79%. The Fed continued its wait-and-see approach to rate cuts during the March meeting, holding the federal funds rate steady and stating that they need more data indicating that the economy is continuing to improve.
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Sales increased 9.5% month over month, and inventory rose 5.9%. More homes are coming to the market and quickly translating to more sales. New listings rose by 15% month over month, which only benefits the market.
Note: You can find the charts & graphs for the Big Story at the end of the following section.
Paradigm shift after NAR settlement
On March 15, 2024, the National Association of Realtors® (NAR) announced a $418 million settlement with a nationwide class of plaintiffs in an antitrust lawsuit. The lawsuit centered around claims that Realtors® conspired to artificially inflate commission rates by not being transparent about how buyer’s agents are compensated.
So, what’s changing about how buyer’s agents are compensated?
Today, when a seller’s agent lists a home on a REALTOR®-owned Multiple Listing Service (MLS), they are able to include an offer of compensation to the buyer’s agent as part of the listing. Moving forward, this compensation cannot be advertised on the MLS.
The practice of putting the buyer’s agent commission percentage on the MLS has led many to believe that number is fixed. And many agents have not done a good job explaining that commissions are negotiable.
If the court approves NAR’s settlement, agents will no longer be able to advertise any buyer’s agent’s compensation when they list a home on a REALTOR®-owned MLS. This will encourage agents to have more in-depth conversations with their clients around compensation, promoting greater transparency across the industry.
Lastly, buyers will now be required to sign buyer’s agency agreements to ensure they fully understand the buyer-broker relationship, obligations between broker and client and how their buyer’s agent is compensated.
All in all, it’s too soon to tell exactly how the proposed rule change will impact the housing market. What we do know is that there are too few homes and too much demand — even with current mortgage rates — for home sellers to worry about competing on price, generally speaking.
Speaking of mortgage rates, the Federal Reserve held rates steady at the March meeting, which was in line with expectations. With the information from Fed Chair Powell, we are now expecting rate reductions after the June or July Fed meetings. The Fed’s dual mandate aims for stable prices (inflation ~2%) and low unemployment. Employment has shown its persistent strength, and inflation is coming down, but the Fed wants more good data before lowering rates because they want to avoid raising rates once they’ve started lowering them.
Overall, the market is starting to heat up, which is what we expect and want to see this time of year. Mortgage rates have been elevated for long enough now that buyers and sellers are less hesitant to enter the market. And rate cuts will come in the second half of the year, allowing for refinancing in the near future. As a result, we are expecting far more transactions than last year and a healthier market.
Different regions and individual houses vary from the broad national trends, so we’ve included a Local Lowdown below to provide you with in-depth coverage for your area. As always, we will continue to monitor the housing and economic markets to best guide you in buying or selling your home.
Big Story Data
The Local Lowdown
Quick Take:
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The median single-family home price reached an all-time high in March 2024. Month over month, prices rose 4.0% for single-family homes but fell 0.8% for condos. We expect new highs for single-family homes throughout the first half of 2024. Condo prices declined 3.8% from the high reached last month.
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Active listings in Orange County declined 0.4% month over month, as sales outpaced new listings. From February to March, sales rose 24.3%, while new listings increased 0.7%. Housing supply is still near record lows.
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Months of Supply Inventory fell below three months of supply in February and fell further in March, indicating the market favors sellers. MSI could easily decline in the spring as buyer demand picks up, moving further into a sellers’ market.
Note: You can find the charts/graphs for the Local Lowdown at the end of this section.
Median price reached a new all-time high for single-family homes
In Orange County, low inventory and high demand have more than offset the downward price pressure from higher mortgage rates. Prices in Southern California generally haven’t experienced larger drops due to higher mortgage rates. In March, the median single-family home price reached $1,378,000 — a new record high. Prices typically peak in the summer months, indicating single-family home prices will likely rise to a new high in almost every month during the first half of the year. Condo prices declined month over month from the all-time high reached in February 2024, but will almost certainly reach new highs in Q2 2024. Additionally, inventory is so low that rising supply will only increase prices as buyers are better able to find the best match.
High mortgage rates soften both supply and demand, but at this point rates have been above 6% for 16 months, and rate cuts will likely occur sometime this year. Potential buyers have had longer to save for a down payment and will have the opportunity to refinance in the next 12-24 months, which makes current rates less of a limiting factor. However, high demand can only do so much for the market if there isn’t supply to meet it.
Single-family home and condo inventory fell slightly in March and remain near all-time lows
Single-family home and condo inventory and new listings declined slightly from February to March 2024, while sales increased. Inventory has trended lower from August 2022 to the present, as far fewer listings have come to the market. Low inventory and new listings, coupled with high mortgage rates, led to a substantial drop in sales and a generally slower housing market. Typically, inventory begins to increase in January or February, peaking in July or August before declining once again from the summer months to the winter. In 2023, inventory patterns didn’t resemble the typical seasonal inventory wave. We were hopeful that inventory and new listings would increase after new listings rose 101% month over month in January 2024. However, new listings have held steady. The number of new listings coming to market is a significant predictor of sales, and the substantial increase in new listings in January led to a 23% increase in sales in February. Demand in Orange County is far greater than supply; in March, new listings only rose 1%, but sales still increased 24%. The next three months will be critical to our understanding of the market. More supply will mean a healthier market. Year over year, inventory is down 13%, but sales are the same as in March 2023.
Months of Supply Inventory in March 2024 indicated a sellers’ market
Months of Supply Inventory (MSI) quantifies the supply/demand relationship by measuring how many months it would take for all current homes listed on the market to sell at the current rate of sales. The long-term average MSI is around three months in California, which indicates a balanced market. An MSI lower than three indicates that there are more buyers than sellers on the market (meaning it’s a sellers’ market), while a higher MSI indicates there are more sellers than buyers (meaning it’s a buyers’ market). MSI has been below three months for most of the past 12 months. Since January 2024, MSI has declined significantly. Currently, MSI implies a sellers’ market for both single-family homes and condos.
We can also use percent of list price received as another indicator for supply and demand. Typically, in a calendar year, sellers receive the lowest percentage of list price during the winter months, when demand is lowest. Winter months tend to have the lowest average sale price (SP) to list price (LP), and the summer months tend to have the highest SP/LP. In Q1 2024, SP/LP was 3% higher than last year, meaning we expect sellers overall to receive a higher percentage of the list price throughout all of 2024 than they did in 2023.
Local Lowdown Data
