The silver lining of uncertain times: more opportunities for great deals

Recently, I spoke with real estate entrepreneur Adrian Hernandez about how recent changes in the political landscape may affect the real estate market moving forward. Adrian brought up that in Orange County, listings are sitting on the market for 66 days on average. Two weeks before, the average was 56 days on the market.

This tells us that housing transactions are hitting a wall, and I think the current political landscape will slow things down even more.

We are roughly four months away from the presidential election and have witnessed two major political events in the past few weeks: the attempted assassination of former President Donald Trump and the announcement that President Joe Biden was dropping from the 2024 race and endorsing Vice President Kamala Harris. 

Even before these two events happened, I called for a slow housing market in the latter half of 2024. In my mind, angry and afraid consumers aren’t exactly primed to sign up for the largest purchase of their lives. 

To consumers, the political craziness of the past few weeks signals that the world is shifting. Fearful consumers freeze up—so yes, I believe that the market is going to continue to slow down substantially throughout the rest of 2024. I think an increasingly nasty news cycle will contribute to a bottoming of housing transactions—that goes for million-dollar homes, $500,000 homes, or $200,000 homes.

Days-on-market will continue to grow along with supply and price cuts in some regions. With this, the next six months will be the easiest time since 2010 to find a motivated seller. Moreover, there is probably no better time to work out a seller financing deal. If I was a buyer right now, here’s what I would do: 

1. Take your area’s average days-on-market and double or triple it. Then filter to only look at homes with that high days-on-market count. Pay special attention to homes that already have cut prices—that means there could be room to negotiate down even further. 

2. Research sellers’ liabilities (debt, mortgage, etc.) and find out who is free and clear or nearly free and clear.

3. Write two offers: a cash price offer and a seller financing price offer.

ResiClub chart of the week:

Last month, ResiClub’s Lance Lambert highlighted the 50 largest housing markets for single-family new construction, according to the latest analysis from Zonda.

Texas markets led the pack: Dallas was No.1 and had 42,840 new home closings in 2023. Houston was No. 2 and saw 32,791 closings. Among the 50 largest markets,13 are in Florida. In the short-term, Zonda is keeping an eye on Texas and Florida, given the current downshift in the housing markets across the states in 2024 as more inventories come online and consumers grapple with higher housing prices, Zonda’s chief economist Ali Wolf told ResiClub.

Number of the week: 200 bps

Last week, Wilmington Trust chief economist Luke Tilley predicted there will be two rate cuts in 2024 and six rate cuts in 2025. He sees the fed funds rate going from roughly 5.5% to 3.5% in the next 18 months—a 200 bps drop. 

What would a 200 bps cut over the next year and a half mean for the economy? 

1. Commercial banks: The last 18 months have been troubling for commercial banks, as they have seen higher rates lead to their balance sheet values falling. But if the Fed gets on a rate-cutting cycle and cuts by as much as 200 bps, commercial banks could actually front-run rate cuts.

   How? If regional banks see rate cuts coming, they may buy a bunch of bonds and sit on them. Over the next 18 months, hypothetically, if the Fed rate drops from 5.5% to 3.5% that likely will ripple through the 10-year, which will drop significantly as well. At that point, the value of the bonds will have grown and banks could see an improvement in their balance sheets. 

2. Small businesses: A 200 bps rate-cutting cycle may be enough to encourage small and medium-sized businesses to start borrowing money again. This is something that hasn’t happened as much over the last 18 months and may help small businesses that have had to rely on hard money loans up until now. 

3. Consumers: For a while, I have been saying that the economy has been slowing down. I think existing home sales will continue to drop. I think the average consumer is already out of the market right now. However, the 30-year mortgage rate has not been below 6.7% in well over a year. If mortgage rates drop, say 150 bps (between 5 and 5.5%), would that be enough to reinvigorate the market? Probably—although I don’t think we would get to this point until after the election. Until then, we are going to be in a slow market.  

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