The Housing Market Is About To Transform...

The housing market is about to see a major change, and it's not just because of the economy. It's because of how you'll be buying and selling houses. Let me show you what I mean by going back in time to the beginning of 2024. If you wanted to buy a $500,000 house and you had a buyer's agent, the way it would work generally is the seller would be paying for the commission for your agent, the buyer's agent, and also the listing agent. So the seller of the house would generally pay a 6% commission, 3% went to the listing agent, 3% went to the buyer's agent. So you bought a $500,000 home and your agent got a $15,000 check at closing, which was paid for by the seller. Now, of course, you were the one paying the money to the seller, but the seller was the one that negotiated that commission and they were the one that was paying for your agent. But that changed in August 2024. There was a new ruling that said home buyers and home sellers would now have to separately negotiate and agree upon a commission with their own individual realtor, which means now if you wanted to buy that same $500,000 house and you had a buyer's agent, you would pay for their commission directly out of your pocket. So if your buyer's agent wanted a 3% commission, you would have to pay your buyer's agent $15,000 to show you the house and close that deal for you. Well, what happened was a lot of buyers said, we don't want to work with the buyer's agent and pay them the $15,000. We'd rather save that money because we can just go to Zillow, we can just go to Redfin and find the house that we want to buy. Well, realtors were not happy and they got a little clever. So what they started doing is they would go and list a house for sale and make it exclusively available on the MLS, which is the real estate agent database. And then if the house did not sell through the MLS, they would then post it on Zillow and Redfin as a way to incentivize people to go through an agent because then you would get that MLS database as well. Well, Redfin and Zillow just responded to this and they said that we don't want to play these games and they don't want to be involved in this. Let me read you directly from what the CEO of Redfin said, quote, Essentially, Redfin is saying, if you as an agent are not going to publicly list your Zillow said the same thing. Those are two of the major public housing databases out there as a way to push back at realtors who are pushing back at the game. What does that mean? It's putting more pressure on realtors to say, essentially, you can't market houses exclusively to realtors. If you have a house for sale, you have to show it to everybody and regular people can find these houses for sale through Zillow, through Redfin. And so this is shaking up the housing market because the icing on the top in 2024, we had the lowest number of home sales in three decades, which means real estate agents went from rolling around in the money in 2020 and 2021 when everybody was buying and selling houses, home prices kept going up, bidding wars were everywhere, and real estate agents were making a lot of to 2024, where it was a much tougher housing market and a lot of real estate agents weren't closing as many deals. So let me break this down because it'll help you better understand what's happening in the housing market and what might be coming with housing prices. Now I want to remind you, we've covered all of this in market briefs. Again, market briefs is my free financial newsletter where every day my team is working to break down what's happening in things like the economy, the housing market, the stock market, the crypto market, and the global economy into a fun and witty and easy to read newsletter. It's read by hundreds of thousands of investors every single day, and it's completely free. Plus, when you join market briefs, you'll also get access to a free investing masterclass. So if you have not joined market briefs yet, I have the link for you to join down in the description below. So let's talk about how the housing market has changed starting with what happened in 2020. In 2020, in the United States, there were 5.6 million houses sold in America. In 2021, there was over 6.1 million houses sold in America. In 2024, there was about 4 million houses sold in America, which means we saw about a 33% drop in home transactions, home sales between 2021 to 2024, which means real estate agents didn't sell as many houses. Now, of course, a lot of this had to do with what's happening in the economy. We saw home prices go up, and we also saw mortgage rates go up. Let me show you what I mean. In 2020, the beginning of 2020, the median home price in America was $329,000. Today the median home price in America is expected to be around $420,000. This is according to the Federal Reserve Bank data, which means the median home price in America between 2020 to today has gone up by around 27%. Now, I should also notify you that the median home price today is a little bit lower than where we were last year. So median home prices between 2020 and today are up around 27%, but mortgage rates went up as well. So yes, home prices went up, but in 2020, you could get a mortgage rate for 3%, maybe even less. Today, you're paying around 7% for the same mortgage. So let's take a look at what mortgage payments would look like for a median house in 2020 and that same median house today, because the median house in 2020 was $329,000. Today is $420,000. Back then you could get a 3% mortgage. Today it's 7%. Assuming you put no money down in 2020, you would be paying $1,380 a month on your mortgage. Today you're paying $2,800 on that exact same house because you're borrowing more dollars and you're paying a higher interest rate, which means mortgage payments have gone up by more than 100% on that same house over five years, while the median income in America is reported to have gone up by around 20%. Now you can start to see the dilemma that we're facing in the housing market. Now I want to clarify one thing. When I say assuming no down payment, I'm not recommending no down payment. I'm saying it for the purposes of this example. I have seen many horror stories of people buying houses with little to no down payments and the problem with that is you have no skin in the game, so when things go wrong, because things do go wrong, we know that that's a part of our economy, the person with no skin in the game, with no equity is the first one to lose their shirt. So be smart when you buy a house. But what does this mean? Well, we are seeing a shortage of affordable houses in America and we know the house's price growth is exceeding incomes. And this is a trend that we have been seeing for a while, but it really accelerated post pandemic. And the reason why this matters is because post pandemic, it wasn't just house prices that exceeded people's incomes, it was the prices of a lot of things. For example, for many people, they found that grocery costs also exceeded their incomes. They found that the price growth in cars also exceeded the incomes. The price growth of many things that people need exceeded the incomes, which means people have less and less ability to save and invest money today than they did five years ago. Unless you were in one of the few positions that saw the incomes exceed the average inflation rate. Why does this matter? Well, that's making it more difficult for people to be able to buy houses. And to really understand the housing market, you got to understand how house prices work. Because like any other asset, house prices depend on supply and demand, period. When you have more buyers than sellers, more demand than supply, the buyers are going to fight against each other to buy the house. How do they fight? Through bidding wars, by bidding higher house prices. But when you have more sellers than buyers, more houses for sale, well, now the sellers have to fight against each other. How do they compete? By offering concessions and by lowering house prices. And the problem that we have been seeing is that the inventory of houses for sale, the number of houses for sale is not high enough, especially when it comes to affordable houses. Now over the last 12 months, we have seen inventory of houses rise, but it hasn't rose fast enough, which begs the question, are we going to see more inventory of houses for sale? Well, there's two things you want to pay attention to. People selling their houses and builders building new houses. When it comes to people selling their houses, one factor that will determine if people will sell their houses is going to be, can I make a profit? Well, we have seen house prices not continue growing at the same rate as before. So people that bought their houses in 2023 and 2024 might not have seen a huge growth. And if you're paying for a realtor and everything else, you need to see your house price grow by 15 to 20% to justify selling it and putting some money in your pocket. But the other part to that is also mortgage rates. Because if you bought a house in 2020, 2021, 2022, or even before that, and you refinanced and now your mortgage rate is 2.5%, 3%, 3.5%, 4%, and you're looking at the current mortgage market where it's currently at 7%, you might not want to sell because you're locked in at a very cheap mortgage rate. And you might say, well, I don't want to get rid of my 3.5% mortgage and then go to a 7% mortgage. It just doesn't make sense. See a lot of homeowners that are sitting in their houses saying, I'm just going to live in this house for a long time because I don't want to get rid of this cheap mortgage rate. So that's keeping inventory low, but then you also have to look at new home builds. And this is where we've got to look at home builders. Now this fluctuates week by week, month by month. And the latest report that we have is that builder confidence has fallen to a seven month low. Why? Because of concerns of tariffs. Why? Because a lot of materials used in building are imported from other countries. For example, a lot of our lumber is imported from Canada. And so if you're a builder and you have to import these products from foreign countries and you have to pay a higher fee to get that product, it makes it more expensive to build. And if it makes the house more expensive to build, you have to sell the house for a higher price. You can start to see why that's a problem because home buyers are already struggling paying for the home prices that we have today. Not to mention that we're also still facing a little bit of a labor shortage. And we have seen some construction companies say that they have had a number of their workers deported due to some of the policies going on right now. So what does this mean for the housing market? Well, we know that realtors are facing a lot of challenges. They're facing legal challenges and now they're facing challenges by Redfin and Zillow. This is a brand new challenge brought on by Redfin and Zillow, where Redfin and Zillow are now saying that if you're a realtor, we don't want you to be able to market exclusively to realtors. We want you to market to everybody. And that's difficult because more and more buyers are saying, well, we don't want to pay a realtor 3% out of our own pocket. We can just pay an attorney $1,000 or a couple thousand dollars and see the houses ourself. Now do I think there's value in an agent? Sure. For the right person. Not for everybody. But before this ruling, it made it a no brainer to have an agent for you because the seller was going to pay the agent's commission anyways. Either your agent was going to get a commission or the listing agent was going to get a double commission. So it made sense to have a buyer's agent. So the need and desire for the buyer's agent has fallen. Not that there's no value in a buyer's agent. I think it can be very valuable. It can save you a lot of time. They can help you with the negotiation. But a lot of people are saying, I'd rather just keep the money in my pocket and not pay that commission. And that's why we're seeing a lot of shakeup in the realtor space, which is obviously impacted also by the economy because we know that the housing market is a lot slower today than And the last part to all of this, of course, has to do with mortgage rates because there's a lot of uncertainty with where mortgage rates are going to go. If you've been watching my recent videos, you know that one of the reasons why mortgage rates have spiked up again, past 7% is because of everything going on with tariffs and with China. There's been a lot of concerns about what's happening with China, potentially dumping treasuries. We saw bond yields surge, which is one of the reasons why mortgage rates have gone up. If you're not sure what that means, watch my recent video about China dumping the United States dollar. It'll help explain that. I don't want to go over all that in this video, but you'll start to see how our entire economy is intertwined and how each thing plays a part with one another. And this is why, again, if you're thinking about buying a house, you got to be able to afford the house. Don't get caught up in the emotions. Remember, you're buying a house not to make money. You're buying a house to make memories. If you're buying a house to make money, buy a rental property. Your house is a money pit until you ultimately sell it. And maybe you'll be able to sell it for a profit. Maybe you won't. But the biggest tax breaks are not for homeowners who are buying a house for themselves. It's for real estate investors buying rental properties. Yes, if you buy a house for yourself and you sell it for a profit, you can avoid paying taxes on that up to a certain amount. But there's a lot bigger tax breaks when you go out and you become a real estate investor. Now, I'm not saying you shouldn't buy a house. I think it's great for you to buy a house when you can afford it. And that means you got to afford the down payment, have at least 20%, have money to pay for the mortgage payment, meaning have money to save and invest and pay your mortgage payment every month because your mortgage payment should not be your monthly investment. Your mortgage payment is an expense and also be able to afford the moving costs because movers can be expensive, new furniture can be expensive, and new upgrades on your house can be expensive as well. So if you're thinking about buying a house, great. Don't worry about time in the market. Find a house that you love and buy it when you can afford it. And besides that, keep investing your money because that's how you build real wealth. No wealthy person talks about how they became super wealthy because they paid off their house. It's a nice bonus to have. It's nice to not have to stress about your mortgage payments. Those are all good things. But if you really want to become wealthy, you got to have the assets that can pay for your house and continue to pay for your kids, your grandkids, and give you that freedom that you're really looking for. And with that, I will see you on YouTube tomorrow.