US Housing Market Could Get A Shakeup After Class Action Lawsuit
The verdict could rock the real estate industry and potentially lower home prices
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Happy Friday!
Cheers to the weekend, and are we also feeling some holiday cheer? Oprah’s favorite things list is out, Starbucks holiday cups are in stores, and Rockefeller Center revealed its 2023 Christmas tree.
It weighs about 12 tons and is 80-feet tall. We’ll have to wait unit Nov. 28 to see it all lit, though. (Is it weird that they’re cutting it down from a neighborhood?)
Mosheh, Jill, & Lauren
PS: Don’t forget to turn your clocks back at 2am on Sunday. Daylight saving time officially ends on November 5.
🗞 VERDICT COULD RESHAPE HOW HOMES ARE BOUGHT, SOLD
A verdict this week might mean lowers housing prices, but first—-
WHAT IS GOING ON WITH HOUSING?
An affordability crisis is here, and it’s about housing: prices continue to rise, and inventory shrinks.
Americans now need to earn a record $115,000 to afford a typical home - up more than 50% since the pandemic.
Mortgage rates are just shy of 8%, the highest they've been in over 20 years.
💵 It adds about $1,100 to the monthly payment on a $400,000 loan.
The median sale price of a home is $431,000, up 35% since 2019.
And don’t forget about realtor fees: US consumers spend around $100 billion a year on broker fees but a new verdict might lower how much home sellers have to pay realtors.
A W FOR SELLERS
A Kansas City jury said the National Association of Realtors (NAR) and two of the nation's largest brokerages, which arrange transactions between a buyer and a seller, conspired together to artificially inflate realtors commissions. Now they need to pay $1.8 billion in damages to about 500,000 Missouri home sellers.
Here’s the breakdown:
🏠️ Real estate agents work on commission: when they help buy or sell a home, they get a percentage of the final sale price.
💻️ NAR rules required sellers to make a nonnegotiable commission offer before listing homes on the property database, the Multiple Listing Service (MLS), which feeds widely used real estate sites including Zillow.
➕ The agreement makes the home seller pay both the buyer’s and seller’s agent (around 6%) — and it’s been done like this for decades.
Home sellers can negotiate it down, but usually don’t.
Example: a seller with a $1 million home can now pay as much as $60,000 in agent commissions — $30,000 to their agent and $30,000 to the buyers’ agent.
Critics say it hurts both buyers and sellers: sellers pay extra and they typically add it to the cost to home’s price.
The future: The verdict says sellers shouldn’t be required to pay buyers’ agents, and agents would be free to set their own commission rates, which could be slashed in half or less.
The Consumer Federation of America has predicted commission rates could decline from 5-6% to 3-4%.
Buyer and seller fees would become uncoupled — having each party pay their realtor.
Leading-up to the verdict, NAR said a seller's fee could be as low as zero.
WHO’S WATCHING
There is a similar lawsuit representing plaintiffs in Illinois, seeking damages of $40 billion. The Department of Justice and the Federal Trade Commission keeping a close eye on the proceedings.
REALTORS AREN’T HAVING IT
The real estate business disagrees, saying decoupling would have a negative impact for consumers. They say:
Buyers will now have to come up with more cash.
90% of people use an agent to buy a home, and that might drop.
Home buyers need their own buyer agent advocating for their best interests — this will cause realtors to try to buy & sell from their own clients.
Splitting commissions prevents favoritism among agents
The judge may take days or weeks to decide what structural changes the jury’s verdict will entail. Regardless, NAR said they will appeal and no major change for home sellers will happen right away.
☀️ But that doesn’t mean the industry will remain the same until all of the legal matters are settled. Some brokerages may make proactive changes to their commission structure.
NOT BUYING ANYWAY
A strong economy threatens to keep mortgages expensive for years to come — while over half of homeowners are locked into low pandemic mortgage rates (the 30-year mortgage fell to a record low of 2.65% in Jan. 2021.)
The lock-in effect threatens to prevent younger owners from moving to larger homes while causing empty nesters to put off downsizing.
✔︎ Mo News Reality Check: Renting has its own problems too: a new lawsuit from D.C.’s AG says landlords nationwide are effectively colluding to keep rents high.
⏳ SPEED READ
🚨NATION
📌 Sam Bankman-Fried found guilty on all seven criminal fraud counts (CNBC)
📌 U.S. to press Israel for humanitarian ‘pauses’ in war with Hamas (NY TIMES)
📌 Cornell University cancels classes Friday amid ‘extraordinary stress’ on campus after violent antisemitic threats (CNN)
📌 US House approves $14 billion for Israel but there is a catch that might lead to a Biden veto (AP NEWS)
📌 Eric Trump and Donald Jr. testify in fraud trial (NY TIMES)
📌 E-cigarette and tobacco use among high school students declines, CDC study finds (CBS)
🌎 AROUND THE WORLD
📌 US plans $425 million Ukraine weapons aid announcement (REUTERS)
📌 Russia’s Wagner Group Plans to Send Air Defenses to Hezbollah, U.S. Says (WSJ)
📌 Hamas reportedly sending text messages to families of kidnapped (TIMES OF ISRAEL)
📌 Executions in Iran are up 30%, a new United Nations report says (ABC)
📱BUSINESS, SCIENCE & TECH
📌 Disney to acquire remaining stake in Hulu for expected $8.6 billion (CNN)
📌 Apple iPhone lineup selling well but Mac is down big (VERGE)
📌 Starbucks unveils plan to add 17,000 locations by 2030, cut $3 billion in costs (CNBC)
📌 Six Flags and Cedar Fair are merging (CNN)
🎬 SPORTS & ENTERTAINMENT
📌 The final Beatles song, 'Now and Then,' featuring all four members, released (NBC)
📌 Lisa Marie Presley slammed Sofia Coppola’s ‘Priscilla’ script as ‘vengeful and contemptuous’ for Elvis depiction before she died (VARIETY)
📌 Braves open as favorites to win 2024 World Series (BATTERY POWER)
📌 Mariah Carey facing $20M lawsuit over 'All I Want for Christmas is You' (FOX)
🎉 CHEERS TO THE FREAKIN WKND
Together with:
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WHAT WE’RE WATCHING: Mosheh: Sly Stallone documentary + Rewatching Suits on Netflix; Jill: The Gilded Age, Season 2 on Max
WHAT WE’RE READING: Mosheh: When McKinsey Comes to Town: The Hidden Influence of the World's Most Powerful Consulting Firm~ Walt Bogdanich, Michael Forsythe; Jill: We’ve Used Showers for Centuries. Why Can’t Hotels Make Them Easier?~ WSJ
WHAT WE’RE EATING: Mosheh & Jill: Leftovers! The Mo News team recently took an online cooking class with Home Ec chef, who walked us through making steak au poivre with mac and cheese. YUM. (Use Discount Code MONEWS for 15% off)
