This Week's Curveballs In The Housing Market

I’m not going to lie to you – too much happened this week in the news for me to be able to properly recap it for you on this blog. Too much happened in the world, but too much happened even just in the slice of news that impacts the real estate and mortgage spaces. It was a wild one so I’m going to focus on the three curveballs that were hurled at us full speed. 

Look alive because we are going to jump between some wild topics. We’re going to dive into the impact of the war against Iran on mortgage rates, yesterday’s HUGE announcement on an AI powered mortgage and this morning’s jobs report – all of which will be truly consequential for the industry. That means they matter for your real estate strategy. 

Iran 

It was somber news to wake up to on Sunday. I’m not going to pretend to be a foreign policy expert, especially not regarding the Middle East where the conflicts run so deep that the scholars sometimes get lost. For the purpose of this blog, I’m going to stay in my very narrow little lane and talk about the impact of the war on interest rates. Please don’t take that to mean I don’t care to educate myself on the greater concept here, I’m quite immersed in it and have been for well over a year now. But I have a rule that I refuse to add to the noise. I want to bring clarity or encourage conversation – never shove my opinions in people’s already crowded brain space solely for the purpose of getting them off my chest. 

Ok, end rant. Back on track. 

The war is inflationary, specifically because of the impact on the cost of oil. That has caused mortgage rates to deteriorate in a big way this week. Between Monday and Tuesday, we lost about 50 basis points and that was a tough pill to swallow because last week we were toasting rates in the mid-5’s for the Spring Buying Season. More on rates to follow, and how your strategy needs to shift, once I get to the jobs report. 

ChatGPT Mortgages 

Yesterday afternoon Better mortgage announced a partnership with OpenAI to deliver mortgages in 47 seconds instead of 21 days. I believe loan officers across the country simultaneously shit their pants. Better is going after Rocket and UWM, who we’ve known, have been investing BILLIONS of dollars into automating the mortgage process. While I appreciate the concern about my job being eliminated that I’m sure you are feeling right now – I think there is actually a more interesting conversation to be had here. 

Let’s rewind back to the NAR lawsuit which was actually about antitrust laws and ensuring more transparency about who was paying realtors and how. The reason I’m pointing out what it was actually about is because the public perceived it to be about realtors making too much money and that drives up the cost of homeownership. On Property Pursuits this week, my guest Nicolle Gust pointed out something I hadn’t really thought of before. It’s true that realtor commissions impact home prices because when a seller doesn’t want to pay both agents – she points out to them that comps (comparable sales in their neighborhood) take into account that their neighbors paid both agents. The comps that seller is using to justify listing their home at a certain price include the cost of realtor commissions.

I don’t want to get too far off track here. You may already see where I’m going with this. 

If AI advanced to a place where it replaced realtors – how much would that bring down the cost of homes? Would it be the 5-6% that realtors currently are compensated? I don’t want you to get angry at me, especially if you’re a realtor because I’m not saying AI should replace realtors. I’m saying we would be silly to not consider it as a possibility. An app could unlock the door for you, Mr. Buyer, without you having to go through the friction of choosing a realtor, coordinating schedules with said realtor, meeting the realtor early to sign a buyer broker agreement, etc. The app could fill in the blanks on the contract based on what you tell it you want to offer. 

This AI bot may not be the best real estate advisor, and this is a huge purchase. That is not the conversation I’m intending to start right now. I want you to consider the impact on affordability of AI reducing costs when it comes to buying a home. 

Circling back to the ChatGPT 47 second mortgage announcement yesterday. Better’s CEO was quoted saying that this new model he’s created would save the American public $20 billion dollars. That’s how much he says mortgage companies make on the fees they charge to underwrite a loan and his 47 second tool replaces that service. White Better’s stock prices jumped on the news – Rockets and UWM’s fell. I don’t think those two big dogs will stay down; they will ramp their efforts up harder and faster.  

Today we are discussing an OpenAI tool to replace the 3-week underwriting process. What will Rocket respond with? How far and how fast will this advance? Of course I want to consider how removing mortgage related costs from the home buying process impacts the cost of homes. Here’s what I really want to hear from you on though. 

The Anonymity of an AI Experience 

I was just walking a very line talking about realtors, right? The schpeel about removing human friction from the home shopping experience... Well, there is a level of human friction to getting a mortgage also. It’s a vulnerable experience to open up your finances for someone else’s review. You’re essentially asking for money, which is not the most fun thing to do right? You’re asking someone to evaluate your ability to repay that money. 

I wonder will removing the barrier of shame, removing the risk of judgement serve to increase access to the American Dream even beyond the cost improvements AI will make? 

What do you think? 

Today’s Jobs Report 

You wouldn’t know this if you woke up and checked bonds before the news, because they are still getting abused by the fast that oil prices have been up $20 since last Friday and up $10 just this morning, but the jobs report today showed 92k in job losses. That data is finally indicative of what we would expect from Main Street where it really does not feel like the economy, including job prospects, are booming. This would have been really good news for mortgage rates because it gives the Fed a clear signal to start cutting rates – based on their dual mandate to keep inflation under control while supporting the labor market. Inflation numbers – prior to this week – were trending in the right direction and now the labor market data is crystal clear.  

Your Strategy? 

With this much noise, it’s easy to feel like you should wait. It might even feel responsible. You want stable rates and to feel like the economy is going to be ok.  

Yet a part of you already understands that the market doesn’t reward patience and that progress, especially in terms of building wealth, requires some level of risk.  I know, that’s a scary word. 

Here’s the thing though, there was a lot of conflicting headlines this week and really every week as of late.  But, the underlying housing dynamics haven’t changed  - inventory is still tight, household formations are still rising, 

Actually I don’t think it should change on any of this news. I still think buyers should be sitting up very straight paying attention to what’s happening with the housing market and diligently looking for the right home to fit their budget and lifestyle. I still think this year will be the last best entry point into homeownership for several years to come.