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Welcome to the Deerwood Realty Show. I'm John Schink, founder and managing broker of Deerwood Realty in St. Louis, Missouri. The housing market is odd. Every day, I see statistics that say that we're either in a lot of trouble or that things are great. It's just the most bizarre thing, and it always reminds me that all real estate is local. Right? Things going on in Florida and Arizona don't really affect me here in St. Louis as far as house prices.

We're going to get to an article in a minute, and it's just not what I'm seeing when I go out with my buyers. We don't see price drops. In fact, we see people bidding up properties. It sucks. When we're listing properties, I'm still looking at what's available and what's sold in the last six months and just pricing from there, which is the way I've always done it, and there's been no penalty. So just because something's going on in Florida doesn't mean it's going to happen here in St. Louis or wherever you live.

Let's get into the article here. I thought it was interesting. It's from Newsweek. It says Americans are dropping home prices as buyers lose interest. Of course, if you're not in the business, if you're just a random person reading Newsweek, you're like, "Oh my God, everything's going horribly all of a sudden." And it's just not the case.

The article says home sellers are cutting prices in an attempt to attract buyers amid evidence of lagging demand, according to real estate platforms. Zillow is not liked by most real estate agents for very good reasons. Home sellers are cutting prices to attract buyers amid evidence of lagging demand. Listings that show price reductions went up by more than 22%, which Zillow says is the highest rate in six years. Price cuts could be due to slowing demand. The real estate platform pointed out that buyers are slowing their interest in purchasing homes, evidenced by things like falling house tours during open houses. And how would Zillow have that information? Well, funny you should ask. Zillow bought ShowingTime, the platform that every single real estate agent uses in the United States to plan a showing. There was another one back when I started, but it got bought out by ShowingTime. You would think that someone would look into monopolies and things like that, but not for that particular industry, apparently. So they know the traffic.

Traffic was off for the last listing that I had, but it still didn't matter. There were still seven or eight offers. When you look at percentages, you have to look at the numbers relatively. If you've had record lows and you come off of those lows, the percentages are going to look higher.

The article says that amid price cuts, buyers are also seeing a market that is affording them more options. The supply of homes available for sale has gone up, with inventory jumping 6.4% last month compared to March, and on an annual basis, supply for sale properties soared 18%. Now look, we were on historically low inventory, so any move up is great, but that doesn't mean that things are back to normal. Although again, I don't know that it's ever going to be normal. The way people have been acting has just been odd.

The housing market is grappling with affordability issues. Mortgage rates are hovering over 7% after being in the mid-6% range earlier in the year. Elevated borrowing costs for homes have depressed activity as buyers are reluctant to enter a market where they'll be confronted with high monthly payments. The article says nothing about inflation. Inflation is the real problem here. The way the Fed has decided to fix inflation, which they're not going to be able to do because there's a tremendous amount of spending, is by raising interest rates. The inflation is so bad, I just don't see that happening.

With rates about 7%, if a buyer purchases a home with a 20% down payment, they will potentially need to pay more than $1,900 a month. That is nearly 12% higher than it was a year ago and a 113% jump since the pandemic. Well, that's on a $359,000 house. I don't have a problem with that logic, but the price is higher than it was due to inflation. It's not an affordability issue, in my opinion, because if mortgages were down at 3%, people would still be buying, and inflation would still go up. That's how messed up things are.

The cut in prices from sellers comes at a time that should be vibrant for the housing market. In St. Louis, it's seasonal. April starts seeing more and more listings. That happens every year; it's not unusual. I don't know that places like Phoenix or Florida would be the same. The driving factor would be school, people out of school, I guess. Home values continue to grow but more slowly than the seasonal norm, and the speed of sales fell behind last year's pace. Could you really continue the pace that we've been on? Sellers appear to have opted to drop prices amid a slowing market. What else are they going to do? They're going to raise prices? Some of this stuff is kind of elementary. Price cuts can be a sign of weakening demand that foretells softer price growth ahead, or it could be a sign that people have priced their homes and are just flat-out greedy and their house isn't worth it. This could be a way for sellers and their representatives to understand what pricing will match the market.

I want you to see a sleight of hand here by Zillow. This could be a way for sellers and their representatives. Do you notice how they've gotten rid of the agents or the Realtor word? And why do you think that is? This must have been an oversight, right? Zillow likes real estate agents, right? They do everything to be nice to real estate agents. They certainly are their partners, right? You'd think that, but you'd be wrong.

The latter scenario becomes more likely in a rapidly changing market like we see today with relatively few recent sales to compare against. I don't even know if that's true. If I see something within the last six months, we're pretty close to where we need to be. Homes that sold in April sold in 13 days, which is fast by historical standards. However, that is three days slower than last April, the first time since June of 2023 that the speed of sales fell behind the previous year's pace. Three days means nothing, by the way. Days on market is subjective, in my opinion. If I put something as pending, it's no longer on the market as it is, but if I could put it contingent, it would still keep clicking on the days. Plus, I could make it active but not have any showings for a week, and I would still be fine. So days on market to me is, especially with three days and since we're comparing to June of 2023, nothing.

What's next? Experts have said that unlocking the housing market will come when borrowing costs trend down. At the moment, the cost of a mortgage is elevated mainly as a result of the Federal Reserve hiking interest rates. Policymakers instituted this to battle inflation. No, it's inflation. That's the thing that really gets me. When I was out there and a house that would normally sell for $300,000 is going for $150,000 over asking, that's inflation. The only reason you're able to afford that is because the mortgage rates have been messed with. That's why this is such a problem. Inflation continues to be above the central bank's 2% target, even as it has slowed from the 9% level it hit in June of 2022. Nine percent inflation.

Policymakers have suggested that evidence of cooling inflation will spur them to slash borrowing costs, which will help lower mortgage rates. What's going to happen if you lower mortgage rates? Do you think people are going to stop buying houses? This thing just gets turned back on like a fire hose. That's the problem I have with the Federal Reserve in general manipulating rates. There's nothing to stop the financialization of housing single-family homes, and it's a problem. No one has bothered to step in and say, "Hey, maybe this is a problem." On a normal listing, I'll get four or five flippers to put in an at-market bid, not even regular home buyers. These are investors. That should tell you that things are not okay.

Anyway, I thought that was an interesting article. As usual, I had some questions I wanted to go over with you. Let's get to it now. I kind of screwed it up. I need to move this over here. There we go. I had to do something on my computer. Here we go.

What are the key factors causing home sellers to reduce prices in the current market?
There's only one factor: their houses aren't selling. That's the way it always is. It doesn't really matter about anything else. You could have an ugly house, but if you price it right, it'll sell.

How do high mortgage rates impact buyer behavior and overall market activity?
High mortgage rates should have already put a chill on buyer behavior, but it just never happened with any severity in St. Louis. Can it? Of course. But it hasn't yet. When we went from a 3% market to a 7% market, I just assumed prices would come down because no one would be crazy enough to pay $2,000 a month or more on a mortgage. That's insane. No one would do that. Yet here we are, a year and a half later, still doing it.

What does the increase in home inventory indicate about the state of the housing market?
I don't think the home inventory numbers were sustainable over time. At some point, you were going to see new inventory. It's just a question of how much and where. For example, we're seeing a robust amount of sales in new construction homes over existing ones, and yet even in this space, there's starting to

be more new construction homes built and ready for sale now than there were two years ago. We had low inventory, so any bump we get off of that is going to be indicated in the numbers as a greater percentage than what's really going on.

How can sellers strategically price their homes in a market with fluctuating demand?
You start with your neighborhood. What's going on in your neighborhood? What's sold in the past six months? Compare your prices with the houses that have sold. Is your house better or worse? Who's your ideal buyer? Answering these questions will get you in the ballpark of pricing your home correctly. It's not that hard to do. What makes it hard are the biases we have: our greed and our sense of pride about our own home. That causes us to price things wrong. But if you just do what I said, you'll be in pretty good shape.

What are the potential long-term effects of the current market trends on home values?
Houses are up around 50% in over two years in St. Louis. That's ridiculous and unsustainable. But we know from economics that prices are sticky, meaning they will quickly move up but tend to go down at a much slower rate. I think we will have to get out of the mindset that a single-family home is an investment over being a place to live. This monetization trend of single-family houses is not beneficial to anyone long-term, in my opinion. There are people making a fortune right now, but it comes at a cost, and we will have to pay it at some point.

How might changes in the Federal Reserve policies influence future mortgage rates and housing affordability?
To me, the real question is if the Federal Reserve is even in control. Even with an increase in interest rates, they don't control spending, and the government is spending so much money. They're pretty much the drivers of inflation. I don't see a scenario where all that changes until things break down. Republicans and Democrats all see is spending. Until we stop this ridiculous spending, which isn't going to happen with modern monetary theory, it's just going to go off the rails. Now, you may say I'm a doomer, but I don't know when it's going to go off the rails. At some point, I'll be right, just like the people that say things will be good are right now. It's just a matter of time.

In what ways can buyers take advantage of the current market conditions?
It depends on where you live, of course. One of the main drivers of price is how much work do I need to do to make the house my own. So much of the available inventory is homes where sellers are moving into nursing homes, etc. If you know you're going to need to do work, be picky and pick a house with good bones that just needs cosmetic updates. Taking on a Victorian home remodel or a complete gut job is probably not something you want to do. But if a house has a new roof, new HVAC, updated plumbing, and a sewer system set up in PVC over clay or iron, you've got good bones. If the foundation isn't settling or cracked, look for those houses over the houses where serious work needs to be done that doesn't help you with your aesthetics and doesn't let you have the house you want and can live in.

How do economic factors like inflation and interest rates interplay with housing market dynamics?
They've had a huge effect. As we've seen, the asking price increases are a result of inflation, but the artificially low interest rates added to this inflation as well. All of a sudden, we could afford more, so we were able to pay more.

What lessons can be learned from historical housing market fluctuations to better understand today's market?
People are quick to compare the real estate market with 2007-2008. I think it's a faulty comparison, not because people can't suddenly stop paying their mortgages again, but so many people saw that as a blip on the radar screen and an opportunity to buy that dip. We're forgetting the people who were hurt by the meltdown and are doubling down. Who was the victim in the last housing crisis?

How should both buyers and sellers prepare for potential market shifts in the coming months?
There are huge things going on in the marketplace in the next three months. The Realtor commission settlement is going to shake things up in the marketplace. I have no doubt. I have no idea what's going to happen exactly, but I understand the law of unintended consequences, and there will be many. As a seller, you are never in a bad spot if you're paying attention to comparable sales. As a buyer, as long as your motivations are correct—that is, you're buying a home for the long term and, if needed, you could stay in that home forever—you will be okay.

Why might some regions like Florida be experiencing a cooldown while others, such as St. Louis, Missouri, are not?
Florida, Arizona, Texas have much stronger economies, much more boom-bust versus what we see in St. Louis, which is just a continual decline in population year after year.

What local factors could influence whether or not St. Louis, Missouri, sees a similar trend in the future?
I don't see St. Louis ever getting back to the city that hosted the 1904 World's Fair. When large employers are looking for new company headquarters, weather and economic environment play a huge factor. Our weather isn't great, and our economic policy is atrocious for attracting new business. Therefore, I think we will continue to stay well behind the trend. When a market like Phoenix goes down, it could be years before we see the decline, and the Phoenix market could be rebounding while we are stuck. I remember during 2007, I went to Denver a few times, and there were construction cranes everywhere. In 2009-2010, in St. Louis, the skyline had maybe one construction crane. It's bad.

With that, I'm going to sign out. I just want to put out there that I am on YouTube, but I'm also on Rumble, X, and Locals. You should be able to find me if you're looking for real estate content. Please subscribe, follow me, and let's grow something fun and enjoyable. Thank you for watching. I'll see you later.