With Fall On The Way, Realtors Remain Realistic – The Mortgage Note

As fall approaches real estate professionals are taking a pragmatic approach as they wait for buyers and sellers to gain more confidence.

Gary Mintz, a realtor with Berkshire Hathaway HomeServices Fox & Roach in Philadelphia, said business was at best okay for the first half of 2024.

“I am ‘hopeful’ that I will have a good remainder of the year, but who knows,” Mintz said. “I have a bunch of things in the process, but I never count my money until it is in my bank account.”

Jared Antin, managing director of Elegran | Forbes Global Properties in Manhattan, said the real estate market will likely remain sluggish in the short term but he foresees a substantial increase in sales volumes by next spring.

“In Q2 2024, the Manhattan market saw a 3% decrease in property contracts compared to the same period in 2023,” said Antin. “Despite this slight dip in demand, the market remained stable due to a 2% decrease in supply, maintaining a neutral market. Currently, buyers have a slight favor in terms of leverage and window of opportunity to secure more favorable deals from motivated sellers.”

The luxury segment for homes over $5 million started the year strong but experienced a slight decline in the second quarter.

“This can be attributed to geopolitical tensions, volatile stock markets, and uncertain Federal Reserve interest rate policy expectations,” said Antin. “High-end real estate transactions are discretionary in nature, and thereby, when people are more confident in the current climate, they’re more likely to purchase. Conversely, in times of uncertainty, people more often tend to pause large discretionary purchases.”

The second quarter was a mixed bag for average home sellers.

Profit margins did not change during the second quarter, despite home prices rising.

Home sellers earned a 55.8% profit margin on typical single-family home and condo sales in the United States during the second quarter, according to a recent report from ATTOM. That figure was largely unchanged, despite the median home price shooting up during the spring homebuying season to a new record of $365,000.

“The broad national trend concealed significant gaps between different regions and economic slices of the U.S. housing market, as lower-priced areas of the Midwest and Northeast generally did better while others did worse,” said Rob Barber, ATTOM’s CEO.

Across the country, Barber said the latest data shows that the typical profit margin for sellers nationwide dipped slightly year-over-year, from 57% in the second quarter of 2023 to 56% in the same period this year.

However, Barber said returns commonly increased in about two-thirds of the metro areas with enough data to analyze in the Midwest and in more than 80% of markets in the Northeast. The improvements stood out most in areas where median second-quarter home prices fell below $250,000.

“The reason came down to simple math: home prices commonly increased more for second-quarter sellers in the Midwest and Northeast compared to how much they had been rising when those sellers originally bought their homes,” said Barber. “The gap – best increases at the point of resale versus the point of purchase – led to the best gains in profit margins in those regions.”

That positive gap for sellers showed up in around three-quarters of the midwestern and northeastern metro areas that were analyzed but in less than 20% of western and southern metros.

A few examples:

Cleveland, OH: The median sale price rose 8% annually during the second quarter of 2024, to $215,000. “That was well above the typical 2% annual increase recent sellers were paying when they originally bought their properties,” said Barber. “The typical profit margin increased in this metro area from 53% in the second quarter of last year to 61% in the second quarter of this year.”

Rochester, NY: The median sale price rose 9% annually during the second quarter of 2024, to $235,000. “That was well above the typical 3% annual increase recent sellers were paying when they originally bought their properties,” said Barber. “The typical profit margin went up from 66% in the second quarter of last year to 76% in the second quarter of this year.”

On the flip side, in Seattle, WA, the median sale price rose 7% annually during the second quarter, to $740,000. Barber said that was well below the typical 13% increase when recent sellers originally bought their properties and the typical profit margin declined from 94% in the second quarter of last year to 85% in the second quarter of this year.”

With profit margins flattening out and interest rates expected to drop, will there be some movement in the housing market moving forward?

Looking ahead, Antin said while market confidence may increase with a potential rate cut by the Federal Reserve next month, this expectation has already been factored into current market conditions. Interest rates have seen a slight decrease this summer compared to the spring.

Subsequent Fed rate cuts will be necessary for mortgage interest rates to drop significantly and unlock the housing market. If headline mortgage rates fall to around 5.5%, Antin said we will witness a transaction boom surpassing that of 2021.

As rates drop, demand will naturally rise, encouraging more sellers to consider entering the market.

“The narrowing gap between current mortgage rates and available rates will drive more transactions,” said Antin. “Additionally, as uncertainties like the upcoming election and the pace of rate cuts become clearer, buyers and sellers will feel more confident in the market.”

The Federal Open Market Committee meets on September 17 and 18.