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Deerwood Realty and Friends Podcast

I work as a real estate agent in St. Louis, Missouri. This is what I’ve seen with my own eyes in the past few years. Is the housing market broken?

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Thoughts/questions:

So, this isn’t a high level academic journal or anything like that. This is just my impressions of a real estate market that I believe severely penalizes home buyers and I’m not sure I even understand what is going on.

I was doing well with my brokerage in 2019. I took buyers out to look at houses, I had listings, and things were really on the up and up. Every once in a while, there would be multiple offers on a property, but nothing that would be considered crazy. At least not relative to now.

Then the pandemic hit. For two weeks, I stayed home like I was told to do. I just figured we were ruined. My business would gradually starve me out of existence and I’d need to find a job wherever I could find one and not be so picky. That would be if I even lived because the coronavirus was going to kill millions of Americans. This is what I was told.

I did what I suspect many Americans did for those two weeks. I spent a ton of time outside, in my garden. Built a retaining wall…really enjoyed spending time with my family.

About the third week, I started getting phone calls from buyers and sellers. I hesitated to get out there and start working again so I called my friend and most trusted advisor in Real Estate, Robert, and I asked him, “What should I do? I’ve got buyers calling me wanting to buy houses and I am a commissioned salesperson. I can’t exactly not work…but I’m scared. The government and media were telling us that we would die.

He said that he’d been out showing houses and just work with the buyers however they’d like to work. Some people were mask averse; some people were very happy to wear a mask…at that time we also had the issue of hand sanitizer because we were told that covid spread through surface contact.

When we would schedule appointments for showings, you were no longer allowed to overlap them. So, if someone set a time for say, ½ hour, you couldn’t set another showing at that time. If you’ve ever been a buyer’s agent showing multiple homes in a day, you know that it’s almost impossible to stick to a perfect schedule showing homes…some showings last 15 minutes, some last 45. I just depends on the house.

So what did buyer’s agents do? They scheduled showings for as long as possible, mostly hours. I don’t think people realized it at the time, but that caused showings to be completely booked from the time the property went on the market until it ultimately sold.
Seller demands seemed to change almost overnight. Gone were the days where you could schedule a showing for the following weekend on a Monday or Tuesday…house would be gone by then. And, I understand this. Given the situation, do you really want random people walking through your house for weeks at a time?

Because we were going to take an economic hit, the fed lowered rates to continue to stimulate the economy, and the government decided to send everyone checks.

Given this, we now had
a. Low rates so buyers could “afford” more house
b. They had down payments in cash, or significantly more cash than they’d previously had.
c. They couldn’t even go to a showing at a house because the schedule was completely booked, no one was doing open houses.
d. People who were being paid to work from home for the first time…which meant that their smaller houses they retired to when they weren’t working all of a sudden became way too small with kids and zoom meetings.

As a result of these things, we started seeing multiple offers. Not the old bidding wars between 2 or three people. We’re talking 40 or more offers on a house.

For some reason, 2021 was my worst year ever. I’d done so well in 2020, and I thought that it would continue. After all, people were buying houses left and right? How can a real estate agent not do even better when the market continues to be so strong for everyone.

I’m not exactly sure, but I know that in one year alone, Missouri added 23,000 real estate agents. I’m quite sure that a few of them ended up working in St. Louis. Why was everyone getting into real estate sales? The money! Everyone thinks there’s all this money in real estate. Every agent just has bulging pockets of cash. I know why people think that. When they see a commission on a closing statement, it looks like a lot of money.

Fast forward to 2022. What’s going on?

1. I have 10 buyers right now
2. I have 6 additional buyers who would sell their house if they could find some sort of home that had better features right now
3. I have 0 listings.

Every week, I set showings with my buyers, and we write offers. Our offers are always way above asking, some are with mortgages some are all cash. Inspections for buyer knowledge only, No appraisal contingency, and fast closing.

Every week, we face long odds in getting a house. The two houses we offered on this past weekend had 9 offers on the first house and 17 offers on the other house.

Those aren’t great chances.

While we even had escalation clauses way past what a house would appraise for, we got beat this past weekend by offers that were higher than our escalation clauses…and we had started way above asking in the first place.

Something is broken in the marketplace. The title company is fine, you can get a mortgage, so the financing portion is fine. There’s something else going on. I don’t know what it is. I refuse to think that as realtors we’ve all of a sudden gotten better at selling houses than ever before.

Here is what I know.

If I have a listing, and work with the seller to set the asking price at a reasonable price according to comparable sales, I’m going to get a stupid amount of offers the first weekend. If I get greedy, and price a house too expensive, the house will sit for maybe a week before someone comes to buy it. You used to get punished for that sort of thing.

What about wait it out? I am currently seeing home sellers who bought their homes in 2019-2020 moving to new homes and selling those homes for 20% or more above what they paid. There is absolutely no penalty for those who own houses. The buyer who was prudent and waited continually gets priced out of the market.

So, when my buyers ask if they should wait, I don’t know what to tell them. The market seemed crazy 2 years ago and it’s gotten even crazier now.

Today, I showed a condo…it was a terrible location, needed a lot of work…there were 4 other families walking through when we did.

Clearly the demand for housing is there. If you look at my buyers, they all need to buy houses for one reason or another. It’s legitimate. They aren’t out trying to take advantage or anything like that. Most are starting out after college, or getting married.

I look at the news articles and a few things jump out at me, and I’ll put them in the description.

1. From the Forbes article, 63% of homebuyers between the age of 28 and 38 regret purchasing the home that they did

Can you believe that? More than half of the homebuyers are regretting their home purchase. Of those how many will want to buy a different house sooner than later, which should create even more homebuyer demand.

2. Average mortgage payments are 36% higher than one year ago!

This is getting ridiculous. Even with historically low borrowing rates, the high cost of housing has taken that gift and basically washed it down the drain. The homes are getting more expensive. Is this showing us the true inflation in our economy or is it something else?

3. Major iBuyers are selling 20% of their inventory to INSTITUTIONS and not the general public.
   

As the author notes,

-Taking inventory off the market, turning them into rentals, and reducing home ownership opportunities aren’t part of the iBuyer narrative, but that’s what’s happening.

-Selling to investors may be a sound business decision, but there are real world implications that directly affect thousands of American families.

So, the institutional thing is something to keep an eye on. In my market and what I am seeing is iBuyers will buy a house for more than what an individual would pay, making a few repairs, and then put the house back on the market for something higher than what the neighborhood comps would normally indicate….Which looks like it just takes a bad situation and makes it worse. The 20 percent they then sell to investors are those houses where they missed. These companies are currently losing millions of dollars per year with their operations, but they don’t care because they are being financed by Wall Street. They can stay solvent longer than a family can…so when a family has to sell their house, they are going to need to turn that house pretty quick…they don’t have the “luxury” of letting it sit on the market or pricing it much higher after repairs because they have limits…these iBuyers don’t.

4. Real Estate Tech Companies are coming for commissions in a big way. By the same author
   1. In my business, if you set a low commission on the buy side, I can’t make a profit…I actually lose money on deals that don’t happen.
      • I think I’m a pretty reasonable real estate agent. In this current environment, I show many many homes to buyers…..more than 30….and writing up offers and following up takes time….lots of it. Thousands of miles and gas isn’t exactly cheap right now…On a 1500 dollar commission, how much money out of that is left when I get to closing? Seriously, cutting commissions to buyer agents in this market is lunacy. You can say, hey, get some more rich buyers for a higher commission and refuse to work with the middle class buyer. Just not who I am. I work with whomever refers me.

5. Better.com lays off 3,000 more employees after firing 900 on Zoom. How did many find out this time? Severance payments in their accounts before they were told.

Better.com is the poster boy for what wall street tells us is working in real estate now. This is a lending company that is supposed to be able to help you refinance, make a new purchase, and even work with a great real estate agent in your area. They are financed by the same miserable wall street companies that are propping up the likes of opendoor and offerpad. If this company is doing such a great job of revolutionizing the “old” real estate industry, why are they so bad at it? Why do they keep having to fire people before the announcement of additional funding? If they can’t make it in this market, what is going to happen to our real estate industry when things turn for the worse?

Something is fishy with all of this. I don’t know how to explain it, but there seems like there is this artificial money floating around to everyone…I mean.

How can buyers pay almost 40% higher mortgage payments year over year and the market not get crushed?

How can these “tech innovators” in real estate continue to lose money on operations and manipulate the market and no one seems to say anything?

How can we have had an amazing year in the slow season (Dec-Feb) to the point where the total sales went down but it was because there was literally not enough inventory to cover the buying and not because of “demand”

None of this makes any sense to me. The other day I saw an article that explains that we are not in a housing bubble. I will link it below. 2 of the 4 graphs are comparing the period of the last housing bubble to now and saying this is proof of no bubble. But, numbers always look the best BEFORE things go south. And, things happen differently…there’s no broad consensus on what the cause of the last bubble even was….so what would be the consensus this time?

I don’t mean to sound an alarm. I’m just explaining what I see from my perspective as someone who is in the business. Your agent may say that things have never been better. To me, it looks like things are frayed at the edges. Will a rise in interest rates help? I dunno. I’m not even sure that I can accurately state the problem other than things just don’t seem right, and they haven’t seemed right for a while. Is this the new normal? I sure hope not.

There’s nothing worse as a buyer’s agent than having a couple look for a house, find “the one”, make a competitive offer, and then get absolutely CRUSHED by the 20 and 30 offers that others wrote on the same house that was “the one” for them. This happens to me every weekend. And, it’s gotten so bad for most agents that they genuinely feel bad when they are listing houses because we’ve all been at this point.

What is going on? Do you know? Put a comment in the comment section below and tell me what you think is going on.