A triple threat stalks the housing market

Why the strange limbo, though? It all started with the pandemic, at least for the purposes of this story. People could work from anywhere and mortgage rates were lower than ever, so they bought homes. It fueled a housing boom, but one that didn’t last long. Scorching hot inflation pushed the Federal Reserve into action, and the central bank raised interest rates multiple times, indirectly pumping up mortgage rates. So people stopped buying and selling homes.

But here we are, roughly two years of semi-paralysis later, and mortgage rates are falling, but people still really aren’t buying and selling homes. Sales of existing homes fell 1% in August compared to the previous month and 3.1% year-over-year to the lowest level in records dating back to 2012, according to Redfin. (The exception of May 2020, a standstill before the boom.) Pending home sales fell to their lowest level on record, apart from April 2020, too.

Mortgage rates reached a more than two decade high in October last year at 8.03%, and at the moment, the average 30-year fixed daily mortgage rate is 6.15%. That’s a substantial difference worth thousands of dollars yearly. It’s also basically double pandemic lows, but we probably won’t ever get back there. It doesn’t seem to matter either way because would-be buyers are waiting on the sidelines, holding out for lower mortgage rates that might not materialize. Some people seem to think because the Fed will cut interest rates today, mortgage rates will drop, too. But they already have, based on expectation alone. 

It isn’t just mortgage rates though. Home prices soared throughout the pandemic and haven’t really fallen since. That makes for some pretty wild down payments, as Redfin pointed out. Let’s say you wanted to put 20% down on a home in Los Angeles, where the average value is about $942,000. You’d need to come up with $188,400. That hurts. 

Then there are election jitters and changes to commissions to contend with. According to Redfin agents, “others are on the sidelines because they’re confused about the new NAR rules or are waiting to see how the presidential election shakes out,” the analysis said. A strange time, right? 

Confusion and delay

It is somewhat understandable that confusion over commissions in the aftermath of the National Association of Realtors’ groundbreaking $418 million settlement would push off buying for some. More so, there is an argument that the changes to commissions are worse for buyers because they’ll either split costs with sellers or go unrepresented, for the most part. 

“Before this settlement, it was absolutely understood that the fee, 5% or 6%, was paid by whom? Entirely by the seller, which meant the buyer paid how much? Zero,” Mark Karlan, a lecturer in finance, real estate, and law at UCLA, once told Fortune. Zero to 3% on a $600,000 home, that’s something: $18,000 really, that the buyer wouldn’t have had to bear the brunt of before. 

In terms of the politics keeping people on the fence, that’s a bit more curious. Both presidential candidates have shared their approaches to housing if elected, but those changes wouldn’t happen overnight. But it isn’t the first time election anxiety has been cited as a factor influencing home sales. 

In an interview during the summer, Redfin chief executive Glenn Kelman said housing was in a funk; people weren’t buying despite falling mortgage rates—and that “the real issue might just be the election. We’ve talked to so many homebuyers who say they’re going to wait to see what happens in this election. It is gripping the national psyche, as you may have heard,” he said. Kelman obviously touched on other problems at hand: inflated home prices, not enough supply, and incomes that haven’t kept up.