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Fournier Law Blog

Intelligent legal insight from our team of experienced attorneys.

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Why Are Buyer’s Agents Earning Less on Home Sales?

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It has been a seller’s market in the U.S. real estate market for the past several months. Many consumers realize the low mortgage rates, coupled with low housing inventory have driven up home prices.  Buyers have been met with bidding wars and have purchased homes over asking price.  However, in some situations, the buyer’s agent isn’t getting as big of a cut, in the form of commission, as they have historically.

According to an article published in MarketWatch.com, “The average commission rate for these agents was 2.63% of the sales price of a home as of the three-month period ending Nov. 30, down from 2.69% a year earlier.”  In fact, it’s the lowest rate since Redfin began tracking the data in 2017.  The buyer’s agents are seeing smaller commission rates because, sellers, who determine and ultimately pay the commission rate to both agents, are offering anywhere from 2-2.5% commission to buyer’s agents instead of the historical 3%.  Simply put, the homes are in such demand sellers don’t have to offer larger commissions to the buyer’s agent.

Coincidentally, real estate buyer’s agents’ commission rate has been the subject of some class action law suits.  It has been argued that the “set-up is unfair to consumers” and could eventually result in buyers having to pay their own agent’s commission instead of it being the responsibility of the seller. This is a topic to continue to watch because it, coupled with eventual decline in home prices, could result in an overall reduction in the dollars in agents’ pockets.

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How Does A Rate Increase by The Fed Impact Mortgage Rates?

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In an article published on Realtor.com, it was stated, “The Fed hinted …  that a quarter-percentage-point increase is soon coming to its benchmark short-term borrowing rate. This would be the first increase since December 2018”.  The reason for this predicted move is to help ease the rate of inflation. 

This increase directly affects the rate at which banks lend money to each other.  However, indirect impacts of this increase would be increases to rates for savings accounts, and of course, rates for borrowing.  According to this article, “That likely will put pressure on mortgage rates, and even though the Fed’s benchmark rate doesn’t directly affect home borrowing rates, they do often have an impact.”

Borrowers and lending professionals have already seen slight increases in long term rates for loans such as the 30 year mortgage.  At the end of January, the rates averaged just over 3.5%, in comparison to the 2.77% borrowers were seeing January 2021.   Some experts predict rates could increase to 4% by the end of 2022.

Nevertheless, rates at even these increased percentages, are still hovering at historically low interest rates.  Read the entire article for more details.

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What Are Future Plans for the Allstate Campus?

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Allstate Insurance Company Headquarters was located at the Northbrook campus for more than 50 years.  However, as with many American companies, the pandemic introduced a wide-spread shift for employees to work from home.  With Allstate specifically, close to 95 percent of their employees have chosen to work from home.  The need for the large multi-building campus was no longer needed by the insurance company and it was listed for sale.

According to an article published by TheRealDeal.com, the Northbrook campus was purchased for $232 million.  Due to the shift in demand for e-commerce, commercial property such as this is no longer purchased with the intent to house employees, instead its investors are looking to develop the land to build warehouses. 

The article states, “The Nevada industrial developer that agreed to pay $232 million for Allstate’s suburban Chicago campus aims to transform the site into 3.2 million square feet of warehouses — assuming it gets the approval of local governments.”  Therefore, the key next step, however, will be to get approval from the neighboring towns of Glenview, Northbrook and Prospect Heights.  The developer hopes to gain the confidence of these towns, who may be concerns about the impact of a large warehouse facility as a neighbor. 

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Slow Down in Home Price Gains Reported

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U.S. home prices have consistently risen each month in comparison to the prices in 2020.  As many Americans are aware, the onset of the pandemic created a high demand for homes and with the short supply and low rates, prices increased significantly.

However, a recent report indicates the price increases may be slowing down.  CNBC.com reports in an article written by Diana Olick, “Home prices rose 19.5% in September year over year, down from a 19.8% annual gain in August, according to the S&P CoreLogic Case-Shiller National Home Price Index. That is the first decrease in the annual gain since May 2020.”

Some cities continue to see significant increases in pricing compared to September 2020.  For example, Phoenix home prices grew just over 33% compared to September 2020.  Even some of the cities in America that reported the smallest gains still have increases of more than 10%.

The managing director at S&P Dow Jones Indices, Craig Lazzara, may have coined the most accurate description of this data:  “Deceleration”.  Prices are still strong, it just appears the growth is slowing down a bit.  The combination of an anticipated increase of homes coming on the market with mortgage rates slightly increasing are potential factors.

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FHA Announces Forbearance Extended Relief for Some Homeowners

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DSNews.com released an article announcing some COVID Forbearance extensions that might allow some American homeowners to breathe a sign of relief.   As a result of the “continued impact of the pandemic”, the Federal Housing Administration is providing extended COVID-19 relief for some homeowners.

The extension specifically applies to borrowers who only recently became affected by the pandemic and are seeking mortgage relief.  According to the article, Principal Deputy Assistant Secretary for Housing Lopa Kolluri indicated, “Our top priority is to help as many individuals and families as possible to recover from the COVID-19 pandemic and keep their home.”

As a result, borrowers who are newly affected by the pandemic can now receive up to 6 months of COVID-19 Forbearance.   Additionally, up to 6 months of additional relief may be provided to borrowers who made requests in the past several months, between July 1, 2021 and September 30, 20201.

Read the entire article and see details of the forbearance periods and extensions.

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Home Sales Fall for First Time in 14 Months

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The real estate market in the U.S. has been a red hot sellers’ market for several months, reflected in homes in short supply and high demand, and consistent price increases.  In comparison to August 2020, the median price of an existing home increased almost 15% by August of this year.

However, it appears that the demand for homes may be on the decline.  From July 2021 to August 2021, sales of homes dipped 2%.  In an article published by CNBC.com, it is stated, ‘“The housing sector is clearly settling down,” said Lawrence Yun, chief economist for the Realtors, who called last year’s super surge “an anomaly.’

It would seem that some buyers are deciding to wait for prices to fall or adjust, especially first time home buyers that might be priced out of the market right now.  According to the article, first time home buyers usually make up about 40% of the total buyers, but the percentage has fallen to 29%.

Additionally, it is expected that more housing inventory is on the horizon with the eviction moratorium ending.  Since the inventory of homes had been down 13% in comparison to August 2020, the additionally supply may help ease the supply issue and cause prices to adjust.

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Is the Housing Boom Over?

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Mortgage rates increased slightly this summer, yet the price of homes seemed to continue rising in response to the high demand for homes.   However, according to an article published by Yahoo! Finance, the housing boom may be winding down. Sales of new home fell 6.6% from May to June and the median home price only rose 6%, a stark drop from May’s gains reportedly in the 15-20% range.

In the article, reporter Georgia Tzanetos offers some possible reasons for the dip in demand and possible outcomes.  The article indicates “Chief Investment Officer at the Bleakley Advisory Group Peter Boockvar told CNBC that ‘the moderation in home sales is likely a combination of sticker shock and the slowdown in the ability of builders to finish homes because of a variety of delays.’”

The next several months will reveal the cause behind the slowing of demand and price increases.  If buyers are hesitant to purchase a home right now, it may be due to the “sticker shock” of rising home prices.  These buyers may begin to search for homes again and even make a purchase if they see home prices decrease in the next few months.  However, the lag in demand may be caused because, simply, “everyone who needed a home bought one…”, which would likely result in prices to continue to fall. As the remainder of the summer market plays out, real estate professionals will be watching closely anticipating what’s next for the real estate market.

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What’s Next for the U.S. Real Estate Market?

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The last several months, real estate in the United States has been red hot.  Low supply of homes, mortgage rates that continue to remain low and a large number of Americans making post-pandemic decisions to move to bigger homes or homes in different geographic areas have all held pave the way for a hot sellers’ market.  However, many know that this is not the first time the real estate market exploded into situations of multiple offers, above asking price, with real estate professionals just trying to keep up.  So, it should be no surprise to many seasoned real estate professionals, that there will be a change in the market at some point.

In an article published by Forbes, a theory about the real estate market phases is detailed.  Real Estate expert Glenn R. Mueller, PhD believes the four phases of the real estate market are Recovery, Expansion, Hyper Supply and Recession.  And, according to Sam Mehrbod PhD, author of the Forbes article, U.S. real estate markets are currently in phase two.  This phase is still a sellers’ market, but heading toward the peak.  On the horizon, potentially, is the third phase.  This phase is a buyers’ market defined as Hyper Supply and buyers become a little more scarce and panic selling can begin.

Mehrbod has suggestions for real estate professionals to help them prepare for the next phase, building a net work to ensure success in any phase of the real estate market.  Its imperative for real estate professionals to continue to build and stay relevant within their networks.  He makes suggestions such as regularly posting relevant and educational content on social media, beginning to build buyer lead lists for future markets, and utilizing marketing funds consistently to allow long term marketing plans. By staying on top of networking and marketing and anticipating what might be coming up next, real estate professionals can be prepared to ride the next wave.

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Are Americans Still Optimistic About Home Ownership?

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The COVID-19 pandemic had a significant impact on the real estate market.  As many employees were required to work from home and more Americans found themselves at home many more hours of the day, they decided it was time to make a move.  Perhaps to a house with more space for a home office and more space for the all the family members spending more time at home to spread out.  As a result, demand increased yet supply could not keep up.  Naturally, in turn, home prices increased as well. 

As Americans feel a slight return to life before the pandemic, the question is, do they still feel that it is a good time to buy a home.  Are Americans leery about the market taking a downturn and perhaps adjust itself?  An article published by Realtor.com indicates that Americans remain optimistic about the upward trend of home prices.  “Gallup’s survey found that 71% of Americans believe that home prices are going to increase over the next year in their local market” writes reporter Jacob Passy.

Further, more than half of Americans surveyed by this Gallup poll indicate that now is still a good time to buy a home, 53% to be exact.  Only 50% of Americans felt this way last year at this time.  Despite reports that home ownership is still viewed as a preferred long term investment, Google has found a significant increase in internet searches revolving around the possibility of a real estate crash.  Indicating U.S. homeowners or potential homeowners are still keeping an eye out for a change in the real estate market.

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How Has the U.S. Managed to Avoid Another Foreclosure Crisis?

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As the COVID-19 pandemic began to spread across the United States last spring and states announced shut downs, many Americans found themselves unemployed or underemployed.  As a result, the federal government took swift action to provide mortgage payment relief by allowing homeowners to enter forbearance.  A year later, as of March 2021, 2.5 million homeowners were still in forbearance, according to the Mortgage Bankers of America.

Realtor.com published an article, noting the opinions of experts who explain that, despite this alarming number of U.S. homeowners behind on payments, a potential foreclosure crisis is unlikely.  In the article, reporter Sharon Lurye explains, the current housing market conditions are likely to provide a safety net for many of homeowners.  Houses, in many parts of the United States, continue to be in high demand and the inventory remains low.  Coupled with low interest rates, homeowners behind on payments, possible nearing the end of their forbearance, could still decide to sell the home for a profit. Additionally, as Americans getting their footing and learn to adjust to the current conditions, forbearance rates dropping nationwide.

Nevertheless, there are still areas of the country where homeowners are not only seriously behind on payments, but the housing market is not as strong due to weak economies and lack of employment.  These homeowners will continue to need assistance by reaching out to their lender with the hopes of renegotiating the terms of their loan in a way that makes it feasible to make the payments.  Still, some may decide to just sell and move to a rental property, assuming they can find a property to rend. 

The good news, it seems that the U.S. isn’t headed toward a wide-spread foreclosure crisis, however there are Americans that continue to struggle and may for months and years to come.

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