Housing upheavel and a path to normalcy

For the past 18 months, the housing market’s attention has been on the mortgage interest rate issue.

The steep increases in housing prices were manageable when rates were around 3%, but buyers are now beginning to realize that the current level of 7%-plus interest rates for a mortgage are here to stay. Meanwhile, those home prices have largely remained in place, and one of the significant effects of these rates is that the lock-in effect for homeowners with 3% mortgages is permanent, which will restrict the inventory of existing homes for sale for years to come. It’s an ouroboros, the symbol of the snake eating its own tail. 

 As the market grudgingly accepts the reality of mortgage rates, a new crisis has captured the headlines. The recent nationwide class action lawsuit about real estate commissions is getting a lot of press. There was a settlement announced but it has not yet been approved by the courts, and there are still many issues to be resolved. The class action lawsuit alleged that commissions have been historically fixed at a certain level, and when sellers included the buyer’s agent fee in the listing price, this created an artificially higher price, contributing to the unaffordability situation. But it has never been the case that commission rates were fixed, these have always been negotiable. And the one certain source of money creation in the process is the successful close of escrow: that provides funds to the seller, to pay off the mortgage company if there is one, to the title company, to the insurance agency, to the home inspector and repair contractors, and to the two agents who were instrumental in getting the deal to the table.

One of the outcomes of the lawsuit is that sellers need not offer the buyer-side agent a commission, and if they do, it cannot be posted in the MLS system. Sellers were never forced to anyway: including the buyer’s agent fee in the listing price has always been an incentive for the buyer’s agent to show the seller’s property, that the buy side agent could rely they would be compensated. Somehow the mis-connecting of the dots suggests that not baking into the selling price the buyer’s agent commission will magically reduce the home price by that number. But commissions do not set pricing, the market demand does. 

Many buyers are already stretched trying to get into the house in the first place: now having to pay their agent as well is injurious. Not having expert representation could be risky: the flashy real estate tech start-ups claim that perhaps buyers don’t need agent representation, that their software and databases provide enough information. A home decision is one of the biggest financial decisions people face: it’s not like watching a celebrity chef on YouTube and following along on the recipe. If that souffle flops, fine, throw it out. If you miss something crucial in a transaction worth hundreds of thousands of dollars, that’s not quite as easy a fix. Cutting out representation compensation is not a fix: stubbornly high home prices are more affected by the lack of inventory than any other factor, it’s simple supply and demand forces at work. 

Signs of a Thaw 

Despite the high mortgage rates and the commission distraction issue, North Idaho (my geographic definition includes the counties Boundary, Bonner, Kootenai, Benewah and Shoshone) continues to be a destination of choice for in-migration. The number of properties on the market has marginally improved (i.e. more of them) but median prices are only 3% off the peak 2023 levels. For the first three months of 2024, there have been more homes sold and more listings that came on the market than in the same timeframe for last year. The housing market last year was at a chaotic standstill. Mortgage applications were at a 30-year low, the sale of existing homes frozen, new inventory was slow to build and costs for labor and material were high. Forget “affordability” – even unaffordable homes were a challenge. Going forward, any reduction in mortgage rates will not be a silver bullet solution, the gap is too large for a quarter point here or there to make any significant difference: at 7%, the monthly payment per $100,000 is $706, at 3%, that payment is $474. The mortgage rate workarounds don’t help much either: Adjustable Rate mortgages don’t pencil out in the current interest rate inverted yield curve, and buying down the rate is expensive and only shifts costs, it doesn’t alleviate them. There’s no obvious financial engineering that can resolve the challenges. Still, the market is showing signs of life, and a gradual improvement is preferred to a sudden surge anyway. Bottom line: people still see North Idaho as a wonderful place to live, and want to be here. 

Real estate scams

In preparation for writing this article, I fine-tuned my radar to identify progressive innovations in the housing market, looking for positive momentum in design, municipal policies, affordability, etc. Unfortunately, the radar also picked up new disturbing creative scams. Here are a few to be wary of.

Home title fraud, also known as deed fraud or title theft, is a type of fraud where a criminal steals a home by forging a deed and illegally transferring ownership of the home without the real homeowner's permission The fraudster can then sell the home or take out a loan against it without the homeowner even knowing about it. Criminals often target vacant properties, especially if the legal owner is deceased, and secondary homes in resort locations.

The most common ways these lowlifes get the data are through phishing schemes, malware, data breaches, unsecured Wi-Fi networks and mail theft. They will monitor Facebook to get personal details, and patiently assess where/when to strike. Theft can also occur if a homeowner loses sensitive documents like their deed or a mortgage statement. The schemes have become increasingly sophisticated and realistic. If you are unfamiliar with these scam tactics, if there is the slightest tingling sense of suspicion, call any Realtor or title company for assistance. We have also seen instances here in Bonner County with hackers targeting the agent community, looking to sell or rent properties that are not theirs. What is astonishing is the level of brashness these criminals are showing. 

The next three months are a traditionally strong time for housing. The spring season will determine if the market is moving toward homeostasis after the pandemic shocks, the work-from-home movement, the resort lifestyle migration, the crazy run-up in prices, the inventory shortage, and the staggering interest rate increases: that’s a lot of upheaval to have to digest and find a path back to normalcy. 

Raphael Barta is an associate broker with an active practice in residential, vacant land, and commercial/investment properties. He can be reached at Raphaelb@sandpoint.com.