Market Update Texas

The Big Story

End of an era: What’s next for agent commissions?

Quick Take:

The National Association of Realtors® (NAR) settled a major lawsuit in March. It’s still too early to tell exactly how real estate will be affected, since the courts have yet to approve the settlement, but we’ll shed some light on what’s happening.
Mortgage rates fell slightly in March, closing the month at 6.79%. The Fed continued its wait-and-see approach to rate cuts during the March meeting, holding the federal funds rate steady and stating that they need more data indicating that the economy is continuing to improve.
Sales increased 9.5% month over month, and inventory rose 5.9%. More homes are coming to the market and quickly translating to more sales. New listings rose by 15% month over month, which only benefits the market.

Note: You can find the charts & graphs for the Big Story at the end of the following section.

Paradigm shift after NAR settlement

On March 15, 2024, the National Association of Realtors® (NAR) announced a $418 million settlement with a nationwide class of plaintiffs in an antitrust lawsuit. The lawsuit centered around claims that Realtors® conspired to artificially inflate commission rates by not being transparent about how buyer’s agents are compensated.

So, what’s changing about how buyer’s agents are compensated?

Today, when a seller’s agent lists a home on a REALTOR®-owned Multiple Listing Service (MLS), they are able to include an offer of compensation to the buyer’s agent as part of the listing. Moving forward, this compensation cannot be advertised on the MLS.

The practice of putting the buyer’s agent commission percentage on the MLS has led many to believe that number is fixed. And many agents have not done a good job explaining that commissions are negotiable.

If the court approves NAR’s settlement, agents will no longer be able to advertise any buyer’s agent’s compensation when they list a home on a REALTOR®-owned MLS. This will encourage agents to have more in-depth conversations with their clients around compensation, promoting greater transparency across the industry.

Lastly, buyers will now be required to sign buyer’s agency agreements to ensure they fully understand the buyer-broker relationship, obligations between broker and client and how their buyer’s agent is compensated.

All in all, it’s too soon to tell exactly how the proposed rule change will impact the housing market. What we do know is that there are too few homes and too much demand — even with current mortgage rates — for home sellers to worry about competing on price, generally speaking.

Speaking of mortgage rates, the Federal Reserve held rates steady at the March meeting, which was in line with expectations. With the information from Fed Chair Powell, we are now expecting rate reductions after the June or July Fed meetings. The Fed’s dual mandate aims for stable prices (inflation ~2%) and low unemployment. Employment has shown its persistent strength, and inflation is coming down, but the Fed wants more good data before lowering rates because they want to avoid raising rates once they’ve started lowering them.
Overall, the market is starting to heat up, which is what we expect and want to see this time of year. Mortgage rates have been elevated for long enough now that buyers and sellers are less hesitant to enter the market. And rate cuts will come in the second half of the year, allowing for refinancing in the near future. As a result, we are expecting far more transactions than last year and a healthier market.

Different regions and individual houses vary from the broad national trends, so we’ve included a Local Lowdown below to provide you with in-depth coverage for your area. As always, we will continue to monitor the housing and economic markets to best guide you in buying or selling your home.

Big Story Data

The Local Lowdown

Quick Take:

Median single-family home prices rose across the selected markets month over month in March 2024. We expect price trends to follow a more normal seasonal pattern this year, so expect continued price growth through the spring and summer months.
Active listings, sales, and new listings rose month over month, which are all beneficial for the housing market. We expect inventory to increase in the first half of the year, and possibly return to a more normal market, after the slowdown experienced over the past year and a half.
Months of Supply Inventory declined sharply over the past two months, indicating the market is getting more competitive among buyers. MSI indicates a sellers’ market once again for single-family homes in most of Texas’s major metros.

Note: You can find the charts/graphs for the Local Lowdown at the end of this section.

Median single-family home prices increased month over month across the selected Texas markets in March

In Texas, home prices haven’t been largely affected by rising mortgage rates with the exception of Greater Austin, which has had a major price contraction since May 2022. Broadly, price contractions are normal in the fall and winter months of any year, so it’s hard to conclude that higher rates have had any meaningful effect on price across most of Texas’ major metros. We expected prices to remain below peak in the winter, but as seasonal demand increases this spring, prices could reach new highs in the summer of 2024 in all the selected major markets except Greater Austin. Additionally, the inventory buildup in 2023 will create a healthier market in 2024, satiating demand as it grows. We expect single-family home prices to continue to rise next month, as the rising inventory and new listings attract more buyers to the market. More homes must come to the market in the spring and summer to get anything close to a healthy market, and we are already seeing more new listings.

High mortgage rates soften both supply and demand, but at this point rates have been above 6% for 16 months, and rate cuts will likely occur sometime this year. Potential buyers have had longer to save for a down payment and will have the opportunity to refinance in the next 12-24 months, which makes current rates less of a limiting factor. However, high demand can only do so much for the market if there isn’t supply to meet it.

Inventory, sales, and new listings increased across markets in March

Inventory trended higher into the fall of 2023 and winter 2023/2024, which is far from the seasonal norm. Typically, inventory peaks in July or August and declines through December or January. Inventory levels in Texas’ major metro areas are unusual in the United States, in that they actually built up to pre-pandemic levels in 2023, moving higher primarily due to softening demand caused by higher interest rates.

During Q4 2023, inventory peaked in October before declining slightly in November and December, as sales and new listings declined. In 2024, inventory has begun to increase once again. Notably, single-family home inventory in Greater Houston and condo inventory across markets all reached two-year highs in March. The number of new listings coming to market is a significant predictor of sales, and the substantial increase in new listings from February to March 2024 led to an increase in sales month over month. The next three months will be critical to our understanding of whether the market has truly reverted back to pre-pandemic norms.

Months of Supply Inventory fell in February and March 2024, indicating the market is getting more competitive for buyers

Months of Supply Inventory (MSI) quantifies the supply/demand relationship by measuring how many months it would take for all current homes listed on the market to sell at the current rate of sales. The long-term average MSI is around four to five months in Texas, which indicates a balanced market. An MSI lower than four indicates that there are more buyers than sellers on the market (meaning it’s a sellers’ market), while an MSI higher than five indicates there are more sellers than buyers (meaning it’s a buyers’ market). MSI trended higher from May 2023 to January 2024 largely due to the decline in sales and longer time on the market. However, in February and March 2024, MSI declined across markets as sales rose and homes sold at a faster rate. Currently, for single-family homes, MSI indicates that Greater San Antonio is balanced, while Greater Austin, Greater Houston, and Dallas-Fort Worth favor sellers. For condos, MSI indicates that the markets favor buyers except for Dallas-Fort Worth, which is balanced.

We can also use percent of list price received as another indicator for supply and demand. Typically, in a calendar year, sellers receive the lowest percentage of list price during the winter months, when demand is lowest. Winter months tend to have the lowest average sale price (SP) to list price (LP), and the summer months tend to have the highest SP/LP. In Q1 2024, SP/LP was slightly higher than last year, meaning we expect sellers overall to receive a higher percentage of the list price throughout all of 2024 than they did in 2023.