Should you wait for the mortgage rates to drop before you buy? Here's the answer no one selling a course will give you, and that is the market just voted, and it voted no. This week, the Federal Reserve meets, and for the first time in years, the live debate is not whether there's going to be a rate cut, but rather whether there's going to be a rate hike. Oil has crossed $100 a barrel. Gas is back up at $4. per gallon nationally and mortgage rates have climbed two weeks straight. If your plan as a buyer or investor is wait for rates to fall and then move, understand what you're actually doing. You're betting on a rescue the people setting the rates are not even discussing. The deal either works at today's rate or it isn't a deal yet. That's not pessimism, that's underwriting. Welcome to the State of the Market. I'm Paul Mark Morris, brokerage owner, investor, and attorney. This week, I see a very strange picture. According to the National Association of Realtors' latest data, the median home price in America just hit an all-time high at just over $440,000. dollars, while buyers at the same time pulled back hard with new contract signings falling almost five and a half percent in June in every region across the country. Let me say that again. Record prices, retreating buyers, and a Fed that is not thinking about lowering rates. What that is, is a standoff. And standoffs do not reward people who guess. They reward investors and consumers who are prepared, disciplined, and understand risk. And that's what we're going to do in today's podcast, breaking it all down and building a clearer picture for you so you can make great decisions. One quick note before we start, I am an investor and I am an attorney, but I'm not acting as your investment advisor or your attorney here. This podcast is my personal market analysis, not legal, tax, financial, or investment advice. And I give a fuller disclaimer at the end. So let's get into it. Segment one, the numbers you can't afford to miss in under two minutes. So start this stopwatch. Okay. According to National Association of Realtors, existing home sales are running at approximately 4 million sales per year. and that is up 2.8% year over year for June. The median home price, just over $440,000, is an all-time record and that is up 1.8% year over year. Inventory of 1.56 million homes, which is four and a half months of supply. This is a balanced, not a seller's or buyer's market. and first-time homebuyers took 33% of sales. That's up from 30% a year ago, and that really is a very impressive percentage. Now let's talk rates. Freddie Mac has the 30-year fixed rate at 6.58%. That's up from 6.55 the week before, and that is the second weekly increase in a row and the highest reading since August of last year. For context, a year ago, it was close to 6.75%. So you're still getting cheaper money than last summer, but the direction just flipped the wrong way. Inflation. The June Consumer Price Index came in at 3.5%, down from 4.2%, but that's well above the Fed's target rate for inflation, which is 2%. And critically, this inflation came out just before oil went back up to $100 crude oil, Brent crude per barrel. And that has a big impact, which we're going to talk about more later. Segment two, and this is really our lead story for the week, and that is record prices and buyers are walking. The Fed meets eight times a year or roughly every six or seven weeks, and they are meeting this coming week to talk about interest rates. That's important, and we're going to dive into that shortly in our fourth segment. We are now in a real estate standoff, record prices and retreating buyers. Home prices just hit an all-time high, and buyers responded by walking away. Same month, same market. In June, the median home price hit $440,600, and that's an all-time record high. And pending home sales, the contract signed, that's the leading indicator, fell more than 5%. Sellers are still anchored to yesterday's pricing. Buyers aren't tied to pricing, but what is their monthly payment? And that's what they're actually paying to live in the home. and this gap between seller and buyer is the standoff. But to a savvy investor, that gap is the opportunity. Standoffs end with somebody moving first and the buyers made their move by walking away. So the pressure just shifted to the sellers. If a seller needs to sell, there is an opportunity. The investor who shows up with a real offer underwritten at today's interest rate is no longer fighting in a long line of buyers. They get their deal. Look at it this way. Closed sales dipped 2.4% in June. Pending sales, the deals that become August closings dropped 5.4%. And National Association of Realtors Chief Economist, Lawrence Yun, called out exactly why. Buyers are hypersensitive to affordability. and every wiggle in mortgage rates moves them. His words, the back and forth in monthly sales shows how sensitive homebuyers are to affordability conditions. He also noted the support under the market. Over half a million jobs added since January and wage growth actually outpaced home price growth right now. So the demand is building in the background and affordability is moving in the right direction. Here's the way I see it. The market isn't crashing, it's frozen. A lot of people are not forced to sell. A lot of people are not willing to stretch, so everyone is waiting. And the forced to sell, of course, is the sales side, and the forced to stretch is the buy side and that's what created that impasse. Prices at records with 4.6 months of supply and 33% first-time buyer participation is not what a collapse looks like. 2008 had exploding inventory and distressed sales everywhere. Distressed sales in June were 2%. percent. I repeat, two percent. What we have instead is a market where nobody wants to move first. And 20 plus years in the industry tells me when buyers get scarce, contract terms get rich. So sellers who won't cut the price will still concede on inspection windows, credits, rate buy downs and closing timelines. That's where the deal lives in a standoff in the terms of the deal, not in the headline price. And so what that means is there's really two things that guide a real estate sale. And one is price. That's the obvious one. And the other is terms. And there are deals that I've done where I could not get the seller to budge on price. And it just wasn't affordable within my window, within my underwriting. And yet I was able to get them to compromise on terms In one case getting an owner to take some inexpensive or less expensive owner financing made the deal work It also reduced the down payment required with owner financing. So these are the terms that matter. I've seen other people do a lot longer hold time instead of a 30-day close. When times when the market's very hot, 30-day close is a must. People that are looking to do something with the property, maybe they're going to go get permits and plans to do something or extending the closing date out 60 to 90 days. That buys them a lot of time in carrying costs to get their plans and permits at least started or into the governing bodies to get approvals early. So those are examples of terms. And then also the more obvious ones is there's just a willingness to compromise on making improvements where you find fault with the house and you've got your list of asks and the sellers more willing to come to you and say, yes, we'll pay for that versus when the market's very hot, they may take no write downs at all on those contingencies. On to segment three. And basically, this is my view and explanation. We're looking at war, oil, and your mortgage rate. So why did buyers pull back? You can follow the chain with me. And this week, the chain is live. The ceasefire with Iran collapsed early this month. U.S. Central Command ran nearly two weeks of consecutive strikes. Iran-backed Houthis hit two Saudi tankers in the Red Sea. Now, remember, that's not the Strait of Hormuz that we've been focused on, so that's a new development. It's a new waterway. It's not as large as the Strait of Hormuz. Not nearly as much oil flows through there, but pinching down on yet another waterway which has access to oil and energy, it's an escalation. There's no question. So the Strait of Hormuz, normally about a fifth of the world's seaborne oil goes through there. And the movement through the Strait of Hormuz fell to a three-week low. The cost of Brent crude oil, and you'll hear me use that term, that's the international benchmark. It is generally a fair amount higher, the Brent crude international benchmark higher than the U.S. benchmark, but this is the one we're relying on to look at historical data, so we'll stick with it. The Brent crude went above $100 a barrel last week for the first time since May. Then the picture turned yet again. As of early morning a couple days ago, the U.S. has paused its strikes for a third consecutive day, while negotiations with officials that tell CBS that the talks on reopening the strait are moving in a positive direction. But still, nothing's signed, and the naval blockade is still being enforced. That diplomacy, just the diplomacy alone, caused the Brent crude oil to drop again from its high of 100, back down below 100. And what we're seeing is the national average for gas prices is still sitting around $4 per gallon. So while the fighting has paused, we're still paying a higher war price at the gas pump and in mortgage rates. So just by way of example, before the war with Iran. Brent crude, I mentioned that last week it hit a high. It peaked over $100 a barrel. Before the conflict with Iran, it was trading at $70 per barrel. So that is a massive increase. And gasoline price nationally was about $3 per gallon. And like I said before, we're now at about $4 a gallon. And again, I do believe that gas prices, it really does hit the consumer price index in a very important way. It hits inflation in a very important way. And psychologically, it's even greater because you may go to the grocery store and buy eggs once a week or once every two weeks, but you might go to the gas station once a week. However, when you're driving down the street, you see it's almost like billboard, one billboard after the other announcing gas prices. You are not seeing the price of eggs and bread and milk at every street corner in the city. So it's really, it does have a psychological impact. And I just recently got back from a three-week drive across the country, and it was amazing to see the price differences. And I've got to tell you, when I filled up the car with gas in areas that were less expensive, I was sort of pleasantly surprised. And in areas where prices were as much as $2 per gallon higher, I was, you know, blown away by the cost to fill the tank. So it really does have this sort of psychological impact that's even greater than the real CPI impact it has. Now, let me explain how it's all linked. Expensive oil feeds inflation expectations. That was the thing I was talking about. Not just inflation, but inflation expectations. And that pushes the 10-year treasury yield up, and mortgage rates ride the 10-year treasury. This is in theory. It's happening in real time, and the numbers show it. No one has a crystal ball, but the war did expand to the Red Sea, as I mentioned before, and that threatens, that expansion threatens to turn it into a regional conflict. If that happens, analysts believe crude oil prices. I've seen reasonable analysts talking about crude oil prices going all the way up to 130 or more, which is again, a very steep rise. Truly, of course, no one can predict the future. What you can know is your own math. And that math depends on a small shipping lane most buyers couldn't find on a map. But when it impacts mortgage rates, which determines homebuyers monthly payment, that reality becomes our reality. The Fed meeting this Wednesday could kill the rate cut dream. For the first time in years, the live debate is not when to lower the rates, but whether they should consider a rate hike. Last week, futures market put the odds at one in three of a quarter point hike. What changed? Brent crude crossed $100 per barrel and the inflation relief seen in June suddenly looks temporary. Here's what that means if you're in real estate. Every underwriting model that pencils only because rates will come down next year is now a coin flip based in large part on a war. Underwrite at today's rate, if the deals work at today's rate of roughly 6.6%, a cut would then be a bonus. If you need a rate cut to make your deal, you are betting on a wish or a hope, and that is not a sound deal in my opinion. June's consumer price index cooled to 3.5% because gas prices fell nearly 10% in June, the biggest monthly drop since 2020. But that is already a thing of the past It was before the ceasefire collapsed The new Fed chair Kevin Warsh has pledged to get inflation back to 2 We are now sitting at an inflation rate of 3 And the one thing that brought it down that was inexpensive gas is already gone. With the new Fed meeting coming up on Wednesday, The decision drops at 2 p.m. Eastern Wednesday. Warsh's press conference is at 2.30, and we will be back next week with an update because this will have an impact on the state of the market. Segment five. I really believe everything we've talked about to this point is important, and it is important to understand how geopolitics are driving interest rates, which affect all of us. But now it's time to move away from the national averages and onto the map. Because as you know from listening to the podcast, real estate is local. None of what we just discussed is happening evenly. It's happening. It's just not happening evenly across the country. So be careful because national numbers can mask significant local divergence from what the headlines show and what's actually happening in your neighborhood. For the headlines to show exactly what's happening in your neighborhood, you would have to be in exactly the place where the median house price sells for $440,600. And if that's not true, you're going to see some divergence. We noted that sales are up from a year ago, but month to month, so year over year, for example, you know, May over last May, June over last June, we're talking about sales were up. But month to month, for example, this June over last month, which is May, that the markets have really cooled, but they've cooled unevenly. Start with National Association of Realtors' regional divide. Month over month, sales rose only in the Northeast, being up by just over 2%, while the South fell just over, it fell just over 3.5%. The Midwest fell about 3%. and on the west it fell just over one percent. Ben Lair on realtor.com's June hottest market report out mid-July which ranks metros by demand per listing and speed of sale. Those are pretty good metrics and again we've talked about it before Hartford Connecticut holds the number one spot And that is a supply-starved Northeast market where the real estate standoff we just headlined doesn't even really exist. So my advice, as always, is treat all of the rankings, even regional rankings, as directional, definitely not as the truth. Because different sources even measure different things different ways. and these shift monthly, but use the directional picture. A tight supplied Northeast and coastal California markets stay competitive at record national prices. The Sunbelt is still digesting its pandemic run-up. So you see places, again, last time we talked on the state of the market, the Austin market was off this massive amount. So that they are, again, still absorbing that pre-pandemic run-up, and pockets of Florida may now just be finding a floor. So what you do with that information is not move to Hartford. It's this. The national standoff is an average of markets that are nothing alike. Here's my advice to you. This is a must-do if you're a consumer or an investor. Find out how hot or cold your market is, how much inventory there is, how long things are sitting on the market, and how much over or under list price they're actually selling for when they go under contract. And testing this is easier than you think. Here are some free sources. Realtor.com and Redfin both publish inventory and days on market for every metro area. Just search the site and input your city. You can see that. If you want a little even simpler but very hands-on approach, you could just open Zillow for your own zip code. You can draw a map around the little area if you want to use an area instead of a zip code and count three things. How many listings show a price cut? How long have they been sitting on the market? And how many are for sale? Now, one caveat to be careful about is because sellers hide price cuts and days on the market by taking a property off the market for a little while. So they'll take a listing that was overpriced and sitting for a long time. They'll take it off the market. They wait a certain amount of time. They put it back on the market at a lower price. Now it's going to reset the days on market at zero at a lower price. It's not going to show you a massive amount of days on market, even though they were there. It's not going to show you a massive price drop, even if they did one. And again, you dig a little bit below the surface and you can see in the history that, you know, it was on the market at this price for a certain amount of days. And lo and behold, it came off the market for a couple of months. It's now back on the market and it may be on the market for two days with no price cut, when in fact it had been on the market for 100 days with a huge price cut. So take that into mind when you're looking at Zillow. Another way to do it is you just go to a realtor, and I would definitely pick one that has a lot of familiarity with the area, and they can get you exact numbers. That would really be ideal, so I would definitely suggest that. And you just ask them two questions for your area or your zip code, and that is how many months of supply, that's the inventory, and what's the average days on market? And here's how to read those answers. months of supply, if they're under four months, and first let me just say what months of supply is, and that is if you stopped, you take the number of houses that are on the market right now, and if you didn't add any more new listings, how long at the current pace would it take you to run through the current inventory? And if the answer is four months or under, that's a hot market, that's a seller's market. If it's somewhere between four and six, consider it a balanced market. And if it's over six, that's a buyer's market. So if you're in a seller's market, you're going to have less leverage. Of course, if you're in a well-balanced market, you're going to have a fair amount. And if you're in a buyer's market, you're going to have a lot of room to negotiate. Now, again, these things are, even when you go super hyper-local, it's still a generalization. because in my zip code, there's so much variation. There are houses down the hill. There are houses up the hill with no view. There are houses on top of the hill with a view. If you're comparing price per square foot of a house on top of the hill with a view versus on top of the hill with no view or down the hill, it just doesn't make sense to compare these. You have to get hyper-local, but it's not that hard to do. So you just look very carefully at those numbers that I've been just telling you about. And that is what's the inventory and how quickly have things been selling? Also, you can ask a third question, which is what percentage of listing price are things selling for in your area? That's also going to be an indicator of how hot the market is. If it selling at 100 of list price or 100 or even more that a very hot market If it selling well below list price that an indication of a cool market But again, these things, even we talked about national and how you can't really look at a national weather forecast and plan your picnic for tomorrow. It's even more specific. House to house can be different. So I believe that makes things on one hand harder, and on the other hand, it makes it easier because you can really get a lot of information about a particular property fairly easily, and that puts you ahead of the rest of the pack. The investor who knows the neighborhood, or even better yet, knows the individual location or house, they beat the investor who knows the headlines every single time. Segment six, and this is a bit of a fun one for me, I call it our guru watch. And every week I like to take a look at what the loudest voices are saying in investing and real estate and what they're selling versus what the data actually says. Robert Kiyosaki says a major crash, possibly even a depression is coming. I'm gonna give you my take and back it with real data. On July 9th, Kiyosaki posted that any asset requiring trust, bonds, stocks, ETFs, even the dollar, will be destroyed in the coming crash and possible depression. And he doubled down this past week. Let's look at data that he relies on, which actually is accurate. And that is, America's debt is historic, and owning real things like property, gold, land, instead of only paper like stocks and bonds, it's never been bad advice. But on housing, I think he's wrong, and the data supports my view. A real estate crash needs forced sellers, and America's homeowners are the opposite of forced. In the last real crash, 2008, 2009, 26% of homes with a mortgage were underwater. Today, only about 2%. American homeowners are also sitting on roughly $34 trillion of equity in their homes. And per CoreLogic, homeowners with a mortgage hold nearly $18 million of that equity, five times what they had 15 years ago. and the average homeowner is sitting on about a $300,000 cushion of equity. People with equity don't get foreclosed on. They sell and they cash a check. No forced sellers, no flood of inventory, no crash. Kiyosaki has been predicting the big one for years. The crash just doesn't show up, but the sales pitch always does. The fear is the product, but the data is the plan. One quick moment on why this matters beyond just debunking one famous author's claims, and that is this week's environment, war, oil at $100 per barrel, a possible rate hike is exactly when crash content spikes. Our work as investors is to separate the headline from the forecast. The headline is real. The crash forecast is someone trying to sell you something. Take the useful part and respect debt, own real assets, keep cash on hand. These are smart things to do when the headlines are reading what they're reading. And throw out the panic and the sales pitches. Segment seven, what you do with all of this. And I always want to do this and create really practical, actionable things to do from this podcast, including the state of the market segments. And there are three questions I would ask this week, not moves I'm prescribing, just three questions I'd be asking if I were looking to invest in your area. And the first question, does every deal in your pipeline, the things that you're looking at? Does it still work at current interest rates or even a bit higher? And so, you know, does it work at mid sixes to all the way to the sevens with zero rate cut assumptions? If the answer is only if the Fed cuts and you don't have a deal, you have a lottery ticket with closing costs. Rerun the numbers before Wednesday. That's when we're going to hear from the Fed. And the second question really stems from Wednesday, 2 p.m. Eastern. Read the statement that they produce, or at least the coverage of it. Did the Fed treat the oil spike and gasoline cost spike as temporary or as a real threat? That answer will set the direction of mortgage rates for the near future. The third question I would ask, if you're hunting in a cooling market, much of the south and pockets of the west, the buyer pullback is your negotiating window. Check days on market and the share of listings with price cuts in your target zip codes. And remember, you can end the standoff not only in pricing, but also in contract terms. You could go in a little higher than you want to or that you can underwrite to and make it up with credits and buy downs, timelines that we discussed before, if that helps your project. These are items that are very important that do not show up in the list price. There are always two things that can make a deal fair. And one is obvious. That's the price. The other is less obvious and therefore very important because this is where you can really find deals that other people are not seeing. And that is in the terms. It's always price in terms. Both things matter. And through the investor lens, just remember, it costs you nothing to ask. So you could go in at a lower price than you think maybe they would take. You don't even necessarily have to go in with a low ball. You can go in with what's a fair price and have some interesting terms that help you out and make the cost of the deal fall within your buy box. And the buy box is a term of art for the criteria you're using for your particular deals. You should, if you don't have one, you should develop one. What's the type of property that I'm looking for? So even if you're not in the game, you can start exploring it. Time window on all three of these questions really is now through the next 60 days because the rate picture resets Wednesday and again with August data when the Fed meets again after this Wednesday. My final disclaimer is nothing in this episode is financial, legal, tax, or investment advice. I'm sharing my personal opinions and analysis as of today. They are not recommendations to be relied on. I always say it, markets change, markets are local, every deal is different. Before you make any investment or investment decision, consult your own professionals, your CPA, your attorney, your financial advisor, a great realtor, and very importantly, do your own due diligence. If this episode helped you see through the noise, subscribe and turn notifications on because Wednesday, the Fed is going to answer a very important question that this episode really teed up. And next week, we will break down what they did and what it means for your market and off into the at least near term future. Another thing I love is drop in the comments, tell me your metro area and what you're seeing on the ground, bidding wars, or price cuts, because your backyard is the data that matters the most. I'm Paul Mark Morris. This has been the State of the Market. Know your numbers, know your neighborhood, and I'll see you next week.
