(00:04) [Music] Welcome to the Dearwood Realty YouTube channel. I'm John Schink, founder and managing broker of Dearwood Realty in St. Louis, Missouri. You know, it's important to have different views, and it gets very strange. I do try to anticipate what's going on in the market and look ahead because if I get a listing in a month, things could be dramatically different. I look at things all the time, and you see it in the national media but not in your home market, so you're confused. In the Midwest, house prices have continued to go up. The market's been terrible for home buyers recently. We've seen some price changes. I wanted to get to this article tonight from Fortune, picked up off of Yahoo. It says the housing market is starting to crack; sellers are cutting prices at record levels as you can no longer price based off of where sales were.

(01:44) There's something frozen about this housing market. Zoom towns like Boise and Austin aside, home prices nationwide have just refused to drop. Existing home prices are on their seventh consecutive month of growth, according to the S&P CoreLogic Case-Shiller National Home Price NSA Index. Average US existing home prices are up by nearly 6% year to date and 2.6% year-over-year. But now, a crack has appeared in October among sellers. The challenges of soaring mortgage rates and home prices aren't just impacting buyers; they're plaguing sellers too. Even with limited existing home inventory, a record number of them dropped the prices on their listings in October, according to a new Redfin report. Nearly 7% of for-sale homes in the US posted a price drop during the four weeks ending October 29th, the highest portion since Redfin started tracking this data in 2012.

(03:05) High rates have forced some sellers to cut prices to make up for the added expense buyers have to come up with on a monthly mortgage payment. Almost a quarter of new buyers are paying at least $3,000 per month for their mortgages, according to Black Knight. The average American earns just $4,600 per month, making that large of a payment unaffordable for most. Sellers need to cut prices to counteract higher payments and keep buyers interested in their property in a market with fewer buyers. Do you think if I go to someone's house tomorrow and say, "Hey, I'd like to list the house for $20,000 less than what your neighbor got six months ago," are we in? No, they're going to fire me. I'm going to tell them that because I feel like it's the right thing to do, to give them an honest opinion on my pricing strategy.

(05:55) Why do sellers need to lower their prices now when they haven't done it since when? For the housing market to really move again, mortgage rates either need to come down or home prices need to drop. Home prices need to come down, and if you're watching the Fed, they're saying higher for longer. They're not going to drop the rates. The economy could go terribly bad, and employment can go very soft, and they're still not going to drop the rates. Right now, the only play is home prices need to drop. But I don't think that's happening either because you've got a huge amount of seller psychology that says, "Everyone's getting more than asking for their house, so we're going to do the same."

(07:03) Moody's Analytics predicts home prices will drop around 4.5% over the next two years, despite low inventory. Rates will remain higher for longer, and we expect demand to remain very low into 2024. People are still buying houses; they're just holding their nose when they do it. Following two years of double-digit price growth, the housing market remains overvalued, and affordability is near a four-decade low. In turn, sellers will capitulate on list price as well.

(08:27) Indeed, in another Redfin report from October, a prospective home buyer needs to make $4,625 to afford a home in today's market, a 15% year-over-year increase and the highest annual income on record needed to comfortably buy a home. This is a problem considering that median household income was $74,580 in 2022, about $440,000 less than Redfin's projections. Things are screwed up.

(09:41) Realtors and economists alike expect home prices to drop through the end of 2023. But I don't. It takes a while for people to finally get the picture. They have to see their neighbors list houses and then not get the asking price before they start doing the same. A real estate agent in Manhattan says she's been telling her clients, "Sellers want last year's prices, and buyers want next year's prices." While some homes were likely priced too high to start, many have adjusted quickly to price aggressively as the market trends downward.

(10:57) Moody's Analytics predicts home prices will drop around 4.5% over the next two years. Rates will remain higher for longer, and we expect demand to remain very low into 2024. Following two years of double-digit price growth, the housing market remains overvalued, and affordability is near a four-decade low. In turn, sellers will capitulate on list price as well. They're going to have to.

(11:39) It's kind of rough to be a real estate agent right now. I don't know if you've seen the lawsuit; it was dumb. That whole thing was just dumb, and now there are copycat lawsuits all over the place. The market is terrible, loan officers are quitting, Realtors are jumping off the ship, and we're getting hit left and right from courts. It's been a wild couple of weeks. I don't care, to be honest with you. I've been a real estate agent for a long time, and I'm going to continue to be a real estate agent. We're going to go through good times and bad times together, and I hope you'll be here with me.

(12:53) With that being said, would you please hit the Subscribe button? I've had a good run, but man, it would be great to have a few more subscribers. If you're interested in real estate content, I feel like I provide a pretty realistic perspective based on somebody who does it every day. That was one of the arguments I had with the lawsuit. You had witnesses that were not practitioners of real estate sales every day. You had executives who may never have even done a deal, which was kind of ridiculous. But anyway, that being said, I'm going to head out. Thank you for watching, thank you for listening, and I will catch you on the next one.