The Housing Market is Hitting the Brakes. What Happens Now?

Pamela Grunstein, a real estate agent in Westchester County, NY gave the rundown of her past week. Her phone went from ringing off the hook to ringing just a few times a day. She feels like the housing market has gone from hot to cold almost overnight. Open houses had been packed with dozens of prospects, now some do not have a single visitor. It is no coincidence that this shift has been during the same time that mortgage rates spiked to their highest levels since 2009. These rate increases with record-high home prices have helped push the average mortgage payment up more than $500 per month. What happens next?

Back in 2007 the housing market contracted. Millions of Americans saw their homes plunge in value or lost their home to a foreclosure. The 2008 crisis affected the housing market for years afterwards. While home prices and sales have definitely gone up, new home building activity has not recovered from the highs seen pre-2008. This means that housing supply is very limited right now. In 2005, new residential home starts reached a high of more than 2 million units compared to 1.6 million in 2021. However, this slowdown is nothing like the last one. Right now we are just experiencing a “rebalancing.” The supply and demand imbalance has helped push the median home price to more than $400,000 in May, the highest on record according to the NAR. However, this could not continue forever. Sales fell for the fourth straight month in May. 

What does this cooling market mean for homebuyers? Be patient. Housing experts are exclaiming that buyers should take their time rather than feel pressured to rush into a deal. This, of course, can be tricky when there are bidding wars over limited supply. Be creative. Experts are recommending to find “houses that have good bones that need maybe a facelift, and see if you can get a good price on it.” Work with experienced professionals. Team up with a good real estate agent and a competent loan officer. Realtors are familiar with local properties and neighborhoods, and they often know the agent on the other side of the table, an invaluable asset. On the loan side, make sure you are comfortable with your loan officer. Prices and rates are changing constantly, meaning what you can afford is also changing. Trust your gut. When your finances, family and home are on the line, make sure to go with your gut feeling. This also goes back to being patient. If it does not feel like the right fit, then do not move forward with it even if it is a “good investment,” 

10% of Home Sales Now Sold to "Flippers"

One out of every ten U.S. homes sold in the first quarter of 2022 was “flipped” - or bought and then sold within a year’s time. This is the highest level of “flips” since 2000. Home flipping has been on the rise for over a full fiscal year now, according to ATTOM, a technology company that runs a national real estate database. However, profit margins are on the decline, reflecting higher mortgage rates and labor/material costs. 

 In the first three months of the year, 114,706 SFR and condominiums in the U.S. were flipped, just short of 10% of home resale transactions. This is an upward trend from 6.9% in the fourth quarter of 2021 and 4.9% in the first quarter of last year. Profit margins are now much lower than a year ago, sinking to their lowest levels since 2009. 

 The good news for fix-and-flip investors is that demand remains strong from prospective homebuyers. The bad news is that rising mortgage interest rates are beginning to slow down home price appreciation, and buyers have become more selective about their purchases. “Buyers are less willing to outbid other buyers for properties they’re interested in,” said Rick Sharga, EVP of market intelligence for ATTOM. Institutional flippers are considered villains during this housing shortage, in which affordable units and “starter” homes are particularly scarce. From individuals with a few thousand dollars to private equity firms with billions, investors are chasing the best yields and are grabbing as many single family homes as they can. These investors are competing with ordinary Americans and driving up prices. “You now have permanent capital competing with a young couple trying to buy a house,” says John Burns, real estate consultant. “That is going to make U.S. housing permanently more expensive.”

 The most flips are being done in Phoenix in the first quarter of 2022 with 18.7% of all home sales being flips. Next was Charlotte, N.C. at 18% and Jacksonville, FL at 16%. Two-thirds of flipped homes in the first quarter were paid in all cash. With interest rates rising, those with enough cash to cover the entire purchase are at a competitive advantage in the fix-and-flip market. It is going to be an interesting next couple of quarters seeing if the percentage of cash purchases increases over the next few quarters.

Atlanta's Mayor Calls for a Limit to Investor Purchases

Atlanta has seen a rise in investor-owned properties over the last two years. Some investors purchase the homes above asking price before the home is even listed on the open market. With a booming economy and major corporations increasingly locating operations in Atlanta, Mayor Andre Dickens is looking for ways that the government can put restrictions on property investors contributing to a surge in the region’s home prices.

Inspired by the Community Reinvestment Act, an act that requires the FED and other federal banking regulators to encourage financial institutions to help meet the credit needs of the communities in which they do business, Dickens wants to protect homebuyers from being pushed out by “iBuyers” like Zillow and other tech-powered players that use algorithms to purchase and flip homes. There has been a rise of sales to landlords that are backed by Wall Street as well in Atlanta. Dickens is looking for corporations that open or expand operations in Atlanta to do so with a commitment to hire 30% of their workforce from local residents. He points to the recent opening of a Microsoft facility in Midtown, Atlanta, which led to the quick sale of homes on the market in that area to investors. 

Mortgage Rates Have Hit 6%. No, the World is Not Ending.

Last week’s rate increases made everything else over the last 6 months look tame. The 3-day jump between Thursday, the 9th and Tuesday, the 14th was one of the biggest on record with average 30 yr fixed quotes going from 5.55% to 6.28%.

It all started with the Consumer Price Index, an inflation report that showed prices rising faster than was anticipated. With the FED stating that inflation is their biggest concern at the moment, and that they do not care if the housing market suffers due to their efforts to contain inflation, you can imagine the effect this had with traders. Along with the CPI came the FED announcement of a .75% interest rate hike. However, interestingly enough, rates began to fall after their announcement. Why? This is because the bond market, which dictates mortgage rates, has always adjusted ahead of time for rate hikes. By the time the FED actually hikes it, it is old news. The market knew from the inflation data that it meant another .25% hike. Then on Monday, the 13th, the market decided it was worth another .25%. When the FED finally pulled the trigger on its hike, the bond market had already adjusted for the most part. 

FED chairman Jerome Powell stated that the .75% hikes will be uncommon. This sent the bond market to its best levels of the week. We can take a small breathe as this is doing some good in the real estate sales market and we might be seeing our first temporary price ceiling…Hopefully. However, we need to see some action on the inflation side before we can determine a long-term ceiling.

Cooling Housing Market is a Relief, But are There Any Consequences?

For over a year, we have watched this housing market run wild. Now, the historically low mortgage rates are over, making a drastic turn upward, deterring potential buyers while putting an end to a flood of refinances. You would think that the housing cool down would be all good… however this cooldown is only going to lead to more dysfunction.

Last week, the FED raised interest rates another .75%, or 75 bps. This already has consumers cutting back on purchasing. The bright side? While the market is only showing signs of cooling, it’s a good idea for people who were considering buying a home to be patient. The FED and the white house have made inflation their top priority. FED chairman Jerome Powell stated, “If housing market activity in the summer of 2022 is a casualty along the way, so be it.”

Just a year ago, homeowners were refinancing into the lowest rates in history, but these days are long gone. Allison Schrager, expert economist had some thoughts on the matter. “The Fed has ended quantitative easing and is raising rates. But what really matters is the 10-year bond yield, because that determines mortgage rates. And like mortgage rates, the 10-year bond yield has been rising recently.” However, she also added that we are unlikely to return to the high rates of the 1980’s. If you do not think that buying right now is the best thing for you, unfortunately the rental market is not going to help you at all either. Would-be buyers are pushing to renting, which is pushing rent demand, and therefore rent prices, much higher. 

Ultimately, the only way the FED can consistently dampen price increases without cooperation from the physical world, without the addition of more houses, is to spur a deep enough downturn to fundamentally alter people’s standard of living, at least for the short term…

Housing Markets are Cooling amid the "Great Deceleration." Is it Your Market?

The housing data from April and May is rolling in and it tells us the housing market is slowing at an unprecedented rate. The housing market saw a 20.6% year-over-year jump in US home prices between March 2021 and 2022 and the data is showing this acceleration is about done. Although we might not see immediate results, all signs point to a slowdown in the rate of home price growth, being dubbed the “Great Deceleration.”

The driving force behind this is of course the Federal Reserve. Over the past six months, the average 30-year fixed rate has gone from 3.11% to 5.09% as the Fed got aggressive trying to fight inflation. This has priced out would-be buyers as well as slowed down loan qualification due to higher debt-to-income ratios because our higher rates and higher loan amounts

The biggest cooling indication is inventory. The pandemic’s housing boom saw inventory fall to forty year lows. As mortgage rates went above and beyond 5%, nationwide inventory rose 10%. Again, this is nationwide. Unfortunately in markets like South Florida and NYC, it might be a long time before we see inventory come back to “normal.” “For me, the best part of the housing story in 2022 is the rise of inventory, as this will put home sellers and builders in check. They had too much pricing power and they pushed prices way too high,” says Logan Mohtashami, lead analyst at HousingWire. In Mohtashami’s mind, higher mortgage rates were the only way to fight our “savagely unhealthy” housing market. The logic behind it is this: As home shoppers delay their purchase due to higher rates, it gives inventory the breathing room it needs to rise. The fall in demand will in turn drive housing prices down as there are less and less offers.

Inventory finally started to rise in late March. This began to pick up steam through April as 83% of the nation’s 400 largest housing markets saw inventory levels rise over the most recent six-week window. The largest jumps, as much as 50% in some cases, were towns in Idaho, Oregon, Arizona and New Hampshire. Do not get too excited just yet. Even though inventory levels are rising, they are still much below pre-pandemic levels. Even if the “Great Deceleration” picks up steam, it will take a while before we are at pre-pandemic levels. “The housing market is still savagely unhealthy because of total inventory levels in America,” Mohtashami says. In order for us to return to “normal” inventory levels, he says that we need another 1.52 million to 1.93 million units. Our latest inventory is at 1.03 million units. He is worried that mortgage rates will begin to fall again and we will lose all of our momentum. “While I am very encouraged that inventory is rising on a year-over-year basis, we need it to stick and head a lot higher. My concern in the future is if the rates fall again, some of the inventory gains we had will go away,” Mohtashami says. I know higher rates suck! However, we need to look to the long term goal of housing inventory to level out. This will drive down home prices and even if you have a higher rate, your payment will remain around the same as the values drop. Then when values increase, you will have an appreciating asset, not a depreciating one!

Mortgage Credit Availability Remains Near Long-Term Lows

A group called the Mortgage Banker Association publishes a monthly index that quantifies how tight or loose lending standards are compared to the baseline. This is called the Mortgage Credit Availability Index, or the MCAI. This is calculated using factors like LTV, FICO score, loan type, loan risk etc. The MCAI declined .9% in May to levels that are in line with the lowest since 2014. This move is not significant in the overall picture, but rather another installment of the same trend seen since the beginning of the pandemic.

Joel Kan, Associate Vice President of Economic and Industry Forecasting, had some thoughts on the matter. He stated, “Last month’s tightening was most notable in the government and jumbo segments of the mortgage market. The decrease in government credit was driven mainly by a reduction in streamline refinance programs, as mortgage rates increased sharply through May, slowing refinance activity. Jumbo credit availability, which was starting to see a more meaningful recovery from 2020’s pullback, declined after three months of expansion.”

Mortgage Rates Soar Past 6% Amid FED Forecast

Yesterday, Monday the 13th, was the worst day for mortgage rates since 2009. On Friday morning, a report was released stating that inflation was worse than we thought. The Fed is currently in what is known as a “blackout period.” This is when they do not offer public comment on monetary policy. With both of these factors combined, imaginations ran wild. The Fed have been increasing rates by .25% each meeting, however with this inflation report coming in, does that mean we are looking at a .5% hike, maybe even a .75%? Market speculators said “yes.” 

The damage has been done and rates went from the high to mid 5% range, to the low 6%’s. It is hard to explain exactly where the rates are today as it depends on many factors like credit, property type, LTV and a few others, but it is safe to say that the average rate is now well above 6%.

US Real Estate Firm Puts Commercial Building Up for Sale as an NFT

US real estate firm Okada & Company has listed its first commercial building for sale with a 15,000 Ethereum($28.7 million USD roughly) price tag. The NFT gives the buyer exclusive rights to “acquire the building all its uses rights & related deed covenants,” the firm said in a statement. “Due to the nature of real estate sales, the sale of the NFT does not warrant the completion of the real estate transaction, or reflect the transfer of the deed or title. The traditional real estate process must still be complete,” it explained. 

Okada & Company is selling a 46,299 sq. feet property in the USA, in New York City’s prestigious Chelsea neighborhood which is located on the West Side of the borough of Manhattan. It is a seven-story office and retail building in close proximity to Madison Square Park and other NYC landmarks. There is one token for this deal, and this NFT will be minted on the Ethereum blockchain, according to the realtor. Chris Okada, CEO of Okada & Company, told Cryptonews.com that the company has already received expressions of interest in purchasing the building from a number of people, “but as we launched the sale of the property three-four days ago we are still in the beginning phases of the sale.”

There are a few different advantages to a transaction of this style. Okada said that they included the “utility of the NFT and finding another way of receiving payment for commercial real estate.” Meanwhile, commenting on the company’s latest initiative, some industry observers argued that Okada is using the sale to make its activities more visible to potential buyers. "My guess is it's a marketing tactic, but imagine a building can trade as NFT? Buyers can see the deed, NOI [net operating income], tenant mix on the blockchain+ trade hands immediately. 10 years away? 15? Whenever this happens will be so sick,” tweeted Web 3 investor Benjamin Cohen.

Little Havana Multi-Family Market Gets Hot as Three Large Acquisitions Totaling $29 Million Close

A trio of Little Havana apartment buildings sell for a total of $29 million, showing signs of investor interest in the small Miami community. Little Havana is located west of the Downtown / Brickell area in miami. It boasts much cheaper rents for locals who want to stay in the area, but cannot afford the Brickell cost of living. The area has wonderful public transportation as well as being just in distance of the MIA airport and major Miami job centers. 

Miranda and Mauricio Villasuso represented the sellers of the properties with Fausto Commercial realty. They gave some insights into the deal. “When a place is attractive for tenants, it is attractive for investors,” the couple said. “Little Havana is a place people want to live. The area has very good long-term prospects for quality and quantity of rent growth,” Miranda added. 

Although the rents are 30-40% higher than what they were just a year ago, they are nowhere close to the ridiculously high Downtown and Brickell rents. I can testify to this remark. I recently moved out of my 1,300 SQ FT, 2 bedroom apartment, where my roommate and I were paying $3,200 per month, into a 950 SQ FT, 2 bedroom apartment, where we are now paying $4,150… Higher rent and less square footage, you have got to love it! Mauricio had some thoughts on the matter. “It’s a fraction of the rents there,” Mauricio said. “It creates opportunities for prospective tenants to retain a level of affordability and a strong element of connectivity in the sense that it is easy to get to surrounding employment centers from Little Havana.”

Housing Wealth Gains a Record $1.2 Trillion, But How Long Will it Last?

Homeowners are more in the money than they have ever been before. Two years of rapid home price appreciation has pushed home equity to new heights. The amount of money homeowners could pull from their equity while still holding 20% equity rose $1.2 trillion in just the first quarter of this year! Mortgage holders tappable equity was up 34% in April year over year. This equated to right around $207,000 per homeowner! This tappable equity is largely held by high-credit borrowers with low interest rates sub 4%. What is the downside?

The downside to rising home values is that prospective buyers are being priced out of the market everyday. With rising mortgage rates, this puts even more pressure on prospects and also makes them uneasy about their higher monthly payment. “It really is a bifurcated landscape – one that grows ever more challenging for those looking to purchase a home but is simultaneously a boon for those who already own and have seen their housing wealth rise substantially over the last couple of years,” said Ben Graboske, president of Black Knight Data & Analytics. “Depending upon where you stand, this could be the best or worst of all possible markets.” The housing market is showing some signs of cooling, however, but is still hot as ever. Home prices were on average, up 19.9% year over year instead of the 20.4% gain we saw in March. April’s decline is most likely due to rising interest rates from the end of 2021 to the beginning of 2022. It will take some time to see cooling off from the most recent interest rate hikes.

Rising interest does historically help with rising home prices, but supply remains insanely low in the current market. Active listings are 67% below pre-pandemic levels, with almost 850,000 fewer listings than the usual spring buying season. Given the current market conditions, homeowners are less likely to sell their homes and more likely to tap some of that vast equity for renovations. Home equity lines of credit are preferable now, as an owner likely wouldn’t want to refinance their first mortgage to a higher rate, even to pull out cash. A recent report from Harvard’s Joint Center for Housing projected home improvement spending to increase by nearly 14% this year.

Microsoft Hires In China for Secretive, Revolutionary RE Project

Microsoft is doubling down on its controversial presence in China, hiring staff for its real estate project that it is dubbing "revolutionary." The tech giant is hiring staff in Suzhou to work on a project that helps people find their "dream home." Their goal is to transform the real estate industry to a state where all rental tasks are done online. The job listings that they have posted are for software engineering and management roles on a team called "Bing Rentals." It appears that the company might be building a rental listings app similar to Zillow and realtor.com.

The job posting reads, "leveraging the great eco-system Microsoft has been building such as feeds, search engine, browser, and app, this investment has great growth opportunity and will empower people with rental need to find their dream house efficiently." This job posting shows that Microsoft has a much higher presence than most other firms in China. To Microsoft, it seems that cooperating with the Chinese government is just a cost of doing business. Microsoft's "Bing" has been in China since 2009 and usually censors information at the government's request. Just last year, Microsoft removed more than 1,100 pieces of online content at the request of the Chinese government. They also launched a new job-seeking platform called InJobs, an app that attempts to minimize controversy by not including a social feed like LinkedIn. Other tech firms like Meta and Google are barred from China, but Microsoft has had a large presence in China since it entered the market in 1992.

Microsoft's Chinese expansion comes at a time where the company maintains a high standing on Capitol Hill. Although the company has a $2 trillion market capitalization that makes it as valuable as Meta and Google combined, lawmakers who usually side against big tech have been quiet regarding Microsoft's large takeover of Activision, a merger valued at $69 billion. "They've flown under the radar well," said Paul Rosenzweig, cybersecurity consultant and former Homeland Security Deputy Assistant Secretary. He added that the company has not yet been forced to choose a side and has been allowed to hang in the midst of the two rival countries.

Multifamily and Commercial Lending Surge in Q1

The volume of multifamily and commercial loan originations jumped 72% in the first quarter of 2022 year over year. Lenders reported solid increases in all categories, but hotels led the wave with a 359% increase, per the Mortgage Bankers Association. This is no surprise as during the pandemic travel and boarding was severely impacted. Multifamily increased 57% and industrial rose 145%. Jamie Woodwell, Mortgage Bankers Association VP of Commercial Real Estate Research had some comments on the matter. “The strong momentum of commercial lending at the end of 2021 carried into the first quarter. The continued growth in lending activity is the result of the ongoing strong demand for certain property types like industrial and multifamily, as well as renewed interest in other property types that saw more dramatic declines during the early stages of the pandemic, such as hotel and retail,” Jamie commented. Lastly, Jamie stated, “It is likely that rising rates will take the wind out of the sails of borrowing in upcoming quarters, but strong market fundamentals, property values and investor interest should continue to support the market.”

With no surprise, office space originations declined 48%. This is due to the rise in work from home positions as well as large companies, like Ernst & Young, going completely remote indefinitely. Activity spiked for most investor types with the dollar amount of loans for depositories gaining the most at 194% year-over-year. Life insurance company portfolios rose 81%, lending company portfolios rose 77% and commercial mortgage-backed securities rose 56%. However, Fannie and Freddie investments only rose 1%!

Different Age Groups and their Home Purchasing Statistics

Although they have encountered an enormously high amount of obstacles to get here, millennials are accounting for just about half of all new home sales and are currently driving the housing market, as expected. The 2022 Home Buyer and Seller Generational Trends Report from the National Association of Realtors(NAR) says the millennial bloc, now aged twenty-three to forty-one years old, accounts for more transactions than any other age group at 43%. These millennials claimed that saving for the down payment was the hardest part when finding a house. One-third of purchasing millennials purchasing received some sort of down payment assistance through the form of a gift from a family or close friend. First time home buying among younger generations is also on the rise, with four out of five millennials aged thirty-one and younger buying for the first time. Many young adults moved in with friends and family during the pandemic to save cash and are jumping head first into homeownership.

Debt is becoming a major problem for Gen X, those aged forty-two to fifty-six. Gen Z, now age twenty-two, is jumping into homeownership at a very early age with 2% of them making up buyers as well as sellers. Young millennials and Gen Z are using mostly tech to find their homes. 65% of them used the internet to find the home they purchased and 92% of them used an agent for their purchase. The top reasons they used agents were to help find the right home to purchase, negotiate the terms of the sale and negotiate the price.

These Bronx Tenants are Fighting Raising Rents Through a Potential Buyout of Their Landlord

Neighbors and tenants of a small Bronx apartment building met up at the local watering hole after a new landlord contacted them saying that he recently purchased the building and that they can expect an almost 50% increase in their rent. Over some bar bites and drinks, the tenants got together and brainstormed over what they could do to fight off the rent increase. The group decided to take steps to each own their apartment unit for just $2,500 each!

They contacted a non-profit organization that decided to pay the landlord $2.6mil for the property in February that would start a five-step journey to the tenants owning their units. Only 11 rental buildings over the past 5 years have taken part in something like this. Called a Limited Equity co-op, or a housing development fund corporation co-op, this is where tenants buy their apartments at prices set by the city, and can sell them for a limited profit. The tenants made this deal happen without any funding from New York City, making it an extremely rare victory and at a crucial time for American’s housing expenses.

The landlord, James Giddings, explained the rent increase was due to higher operating costs, another issue forcing landlords to raise rents on their tenants. As inflation has spiked, landlords have faced rising expenses for labor, fuel and maintenance. Mr. Giddings expressed his happiness for the soon to be owners and wishes them success.

Will Rising Rent in Florida Hit a Plateau?

It is no secret that just like mortgage rates, rental prices are continuing to rise. The prices do eventually come back, however for the time being, we are at the mercy of those able and willing to pay top dollar.

For example, for my own rent in Brickell I am paying $3,200/month until June. However, I have been informed that my rent will be increasing to $4,500 if I wish to renew. Before I could answer (which was going to be a “no!”), they ended up selling the unit for a good profit from what it was purchased for a few years earlier. Either way, I was going to end up back at the mercy of the “north-easterners” coming down and paying above market rents. I am hoping to find a 2 bed for less than $4,200 in Brickell (If you know a guy, let me know!). There is currently a low supply of rental homes and an incredibly high demand, with almost 1,000 people moving to Florida every single day. In 2021, we saw a net increase of 12,000 jobs added to Palm Beach County, so that is 12,000 more people than we saw the year before. Dr. Brian Strow, longtime resident of Florida, gave his insight. “People are saying, ‘The rents are so high, nobody can afford those.’ But the opposite is actually true. So many people can, and are willing to afford these rents,” stated Strow. As properties increase in value, the only way an owner can recoup those costs is through charging higher rent to their tenants. Landlords who were having trouble evicting during the pandemic have even bigger bills…

It is definitely an unsustainable market in terms of purchasing or renting, so we will not see another 57% increase year over year in rents like last year. However, we do not see too much of a correction downward, so the best we can hope for is a plateau!

Record Share of Home Sellers Drop Prices, Zillow Stock Drops 9% With Unknown Housing Forecast

The latest reading of the US housing market is showing signs of a potential shift, however there is still little pricing relief for buyers. The number of home sellers who dropped their sale price shot up to a six-month high of 15% on May 1st, up from 9% year over year. That is the largest annual gain on record, tracked through 2015. Why are prices still so high?

Supply continues to fall behind as buyers continue to outnumber sellers, that simple. The typical home is flying off the market at the fastest pace on record and for much more than its asking price. “Homebuyers continue to be squeezed in every way possible, which is causing some to take a step back from the market,” says Redfin Chief Economist Daryl Fairweather. “Unfortunately for buyers hoping to find a deal as competition cools, sellers are pulling back even faster, which is keeping the market deep in sellers’ territory, so even though price drops are becoming more common, most homes are still selling above asking price and in record time,” Fairweather stated. The median home sale price was up 17% year over year, in May, to a record $396,125. Homes continue to fly off the shelves at an astronomical pace. Forty-two percent of homes that went under contract during the same time period had an offer accepted within one week of hitting the market. Fifty-six percent had an offer accepted within the first two weeks, with the same percentage of homes selling above asking! Along with record-low inventory, the average mortgage payment on the median asking price rose to an astonishing $2,404 with the current market mortgage rate. This is up 42% year over year when mortgage rates were below 3%.

Usually as interest rates rise, demand lowers and supply evens out. However, right now rates are rising, home values are rising, supply is at an all time low and demand is at an all time high. This should be interesting!

Class Action Lawsuit Against Buyer's Agents for Pricey Commissions and Fee Structure

A federal law suit in Kansas City challenging rules requiring home sellers to pay commissions to brokers representing the buyer has just received class action status. This means that if homeowners prevail, they could be eligible to receive funds back from their home closings. U.S. District Judge Stephen Bough on Friday ruled that the lawsuit, which was originally filed in 2019 on behalf of Missouri home sellers who had listed their homes on the Multiple Listing Services system (MLS), met the criteria for a class action, including numerosity and common questions of law or fact. This is not the only case for the same matter, there is an almost identical lawsuit going on in Chicago. The suit names the National Association of Realtors as well as 4 of the top real estate brokerages. The defendants own and operate other large brokerage firms across the US.

The plaintiffs allege the real estate brokerages and NAR have conspired to require home sellers to pay brokers representing home buyers inflated amounts, in violation of federal antitrust law, Missouri antitrust law and the Missouri Merchandising Practices Act. As a condition of listing their homes on an MLS, a centralized database listing homes for sale, sellers are required to agree that the listing agent will split the commission with the agent representing the buyer. Absent that requirement, the plaintiffs claim, “seller brokers would set a commission to pay themselves alone and would likely begin to engage in more vigorous competition with one another to lower their rates and/or provide additional services to justify their newly transparent rates.”NAR argues that the MLS system is efficient and beneficial to consumers. It says that it allows many first-time, low-income buyers to purchase a home they couldn’t otherwise afford because they don’t have to pay brokers directly. IIn response to a request for comment, NAR emailed a statement to KCUR saying it was disappointed with Bough’s ruling, which it said it plans to appeal. “The pro-competitive, pro-consumer local broker marketplaces serve the best interests of buyers and sellers,” NAR said. “Local broker marketplaces ensure equity, transparency, and market-driven pricing options for the benefit of home buyers and sellers. These marketplaces reduce transaction costs by ensuring, among other things, that a buyer broker and their client understand how much the listing broker will pay the buyer broker for procuring a buyer for the listed property.

In granting the plaintiffs’ request for class certification, Bough certified three separate classes, including one consisting of all home sellers since April 29, 2015, who used a listing broker affiliated with the defendants and who paid a commission to the buyer’s broker when they sold their homes.The plaintiffs estimate the classes include “hundreds of thousands of class members geographically dispersed throughout the state of Missouri and portions of Kansas and Illinois.”

Crypto Boom Opens the Door to a New Kind of Landlord

There has been a new emergence of apps allowing for rental property co-ownership on the blockchain. Lofty AI, a Miami-based tech/crypto startup, has the goal of making real estate investing as easy as pulling up your stock portfolio and buying shares. “Diversification is the key to any investment strategy, but the barrier to entry for real estate has always been so high. We don’t believe that should be the case,” states CEO and Founder Jerry Chu.

With Lofty AI, you can invest in real estate by buying their tokens in different properties. For example, shares of the rental property at 917 Pawnee Ave today were $54.29, whereas shares of Debby Dr are $52.97, and you have the choice of which rentals you would like to invest in. There have been similar places to buy fractional ownership of real estate, like Fundrise and Rooftop, however the buy-in minimum is $1,000 plus, and there are restrictions on cashing out. With Lofty AI, you can invest with as little as $50 and sell at any time. Fractional ownership has been on the come up in not just real estate, but other assets like fine art and high-end automobiles. 

So far, lofty features 90 rental properties, most of which are in rust-belt states like Illinois, Michigan, Missouri and Ohio, all with property management companies handling the day-to-day. Just like owning your own rental, when something breaks or the tenant needs help, it is up to the owners to decide to pay for upkeep. So, there are regular votes between all of the owners over issues in their properties. All buying and selling of the property tokens are recorded on the blockchain, something Chu believes is fit to replace old-fashioned record keeping of real estate because the transactions are completely transparent. “The buyer and seller do not trust each other sometimes, the reason for escrow and the whole settlement process. For us, settlement takes four seconds,” states Chu. We look forward to seeing the progress of Lofty AI in their quest of making real estate investment easy for the average investor!

South Florida RE Market Facing More than Just Inventory Issues

South Florida’s palm trees, beaches and quality of life have always been a major attraction, but with almost 1,000 people per day moving to the sunshine state, the living situation is becoming something never before seen in Florida. Locals are becoming priced out of the market and if rent continues the way it is, residents who have been in the area for 5+ years will be forced to move out. Palm beach resident Sandra Lanowich and her husband are hitting a breaking point. “We’re at the point that we might actually have to move out of the state because realistically we can’t afford to live here,” Lanawich said. The couple have been renting in palm beach gardens and have come to the conclusion that they will not find an affordable home anytime soon and their rent may continue to increase.

On top of higher home prices, mortgage rates and rock-bottom inventory, gas prices are fueling frustration, grocery prices are soaring and home insurance rates are through the roof. Realtor Barrett Spray said that more than half of his central Florida clients have been running into home insurance obstacles. “If a roof is older than 15 years, you cannot get insurance in Central Florida. It’s impossible. No one will insure it,” stated Spray. There are also fewer options for home insurance compared to just a couple of years ago. The Florida Office of Insurance Regulation tracks when insurance companies discontinue operations in the state. 2017 saw 7 property insurers stop operating. In 2018, 9 stopped operating, and in 2019, 10 halted operations. In 2020, 26 companies halted operations in Florida. We are still waiting on the 2021 numbers…

There will eventually be a stopping point, but realtor Katie Rawnsley says not to expect the market to change anytime soon. “This is definitely very different from anything we’ve ever seen,” she says. She has been a realtor for 11 years, but with fewer homes and a mass of buyers, she says not to expect the market to change. “We still have very little inventory. We have less than a month of inventory, which I think normal is around three months. So, until that starts to grow, I don’t see this slowing down.” One of her recent listings was for a home in Palm Beach Gardens that was listed at an asking price of $335,000. The property had 31 offers, 25 of which were all cash… With most work going remote, wealthy Americans are working from anywhere and Florida is becoming the place to be. These migrants are flush with cash and have no problem coming in over asking price to make sure they secure their offer.