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Show Notes
Today on Real Estate Backstage … Breaking news of yet another scandal that the National Association of REALTORS® finds itself in… Homebuilder confidence gets a post-election boost … Existing home sales rise for the first time in three years … And we take a look at the chances of whether we’ll see a real estate crash in 2025.
Another NAR Scandal
This past week, the New York Times broke a story that threw the National Association of REALTORS® into further controversy. According to the Times:
“When he became the chief executive of the National Association of Realtors seven years ago, Bob Goldberg negotiated a package of gold-plated perks. N.A.R., the largest trade organization in the country, agreed to cover Mr. Goldberg’s membership dues for private clubs in both Chicago and Washington and a country club of his choice, including an initiation fee of up to $75,000. He would use all three clubs “primarily for business purposes,” according to the contract he negotiated with the organization. The group would also pay for first-class airline tickets when he traveled for business and, once a month, for a round-trip first-class ticket for his wife. He was given a $1,500 monthly car allowance and $2,250 a month to cover utilities and insurance at his pied-à-terre in Chicago, where N.A.R. has its headquarters. N.A.R. even agreed to pay for a pet sitter to watch his dogs when Mr. Goldberg was away from his home outside Washington on business. The extras came on top of his $1.2 million salary that would, according to N.A.R.’s tax returns, grow to $2.6 million in five years. The generous compensation, a New York Times investigation found, is in line with a free-spending culture at N.A.R., which for a century has dominated the American housing industry … Interviews with current and former employees, members and elected leaders, as well as tax records and Mr. Goldberg’s 2017 employment contract, paint a portrait of a nonprofit organization where leaders have come to expect lavish spending and benefits the day they step into the job. The group’s president, president-elect and first vice president are elected by members and receive annual six-figure payments, tax records show. N.A.R. refers to officers as “volunteers.” They have been given corporate credit cards, and on work trips, they have racked up charges from expensive dinners, golf outings, spa treatments and sports tickets, The Times found. When the smash hit “Hamilton” opened on Broadway in 2015, many N.A.R. leaders used those cards to buy tickets for themselves and relatives while they were in New York City for a conference, according to two former staffers familiar with the organization’s budget. At the time, tickets could run in the low four figures. Like the other former staffers and elected leaders interviewed for this story, they requested anonymity because they continue to work in the industry and fear retaliation. Mr. Goldberg, who resigned as chief executive late last year, did not respond to multiple requests for comment … Seven lawyers who specialize in nonprofit law said the group’s spending not only appears excessive but also may run afoul of tax law. Several said N.A.R.’s spending is known among watchers of nonprofits. “It is highly unusual — I would even say virtually unheard-of — for volunteer leaders and officers to receive compensation at those levels,” said Jeff Tenenbaum, a nonprofit lawyer in Washington, D.C. After a landmark price-fixing case last year, he added, scrutiny on the organization was high. “Many of us who practice association antitrust law have always wondered, How can they get away with this?”
The article goes on to highlight how even after NAR leaders step down at the end of their officially elected terms, it is not uncommon for them to continue receiving six-figure consultancy fees for years to come. This is just another example of deep cultural issues within the Association that need to change.
(Source: nytimes.com)
Homebuilder Confidence Gets a Post-Election Boost
Meanwhile, homebuilder confidence is continuing to rise. According to HousingWire:
“The stock market was not the only thing that saw a boost after the presidential election earlier this month. Homebuilder confidence also rose in November, marking the third straight month of increases. The National Association of Home Builders /Wells Fargo Housing Market Index rose three points month over month to a reading of 46 in November. According to the data, builders expect market conditions to continue to improve after Republicans won control of the White House and Congress. The report also found that fewer builders are using incentives in November, with the share dropping from 62% to 60%. Additionally, the average price deduction fell to 5%, down from 6% a month prior … ‘Builders are expressing increasing confidence that Republicans gaining all the levers of power in Washington will result in significant regulatory relief for the industry that will lead to the construction of more homes and apartments,’ NAHB Chairman Carl Harris said in a statement. ‘This is reflected in a huge jump in builder sales expectations over the next six months.’ … NAHB chief economist Robert Dietz noted that builders are not out of the woods just yet. ‘The industry still faces many headwinds such as an ongoing shortage of labor and buildable lots along with elevated building material prices,’ Dietz said in a statement. ‘Moreover, while the stock market cheered the election result, the bond market has concerns, as indicated by a rise for long-term interest rates. There is also policy uncertainty in front of the business sector and housing market as the executive branch changes hands.’ ”
(Source: housingwire.com)
Phoenix Association Offers MLS Access Without REALTOR® Membership
A few weeks ago on Episode 3 of the show, we covered a couple of stories about agents and brokers beginning to bring lawsuits against the NAR, along with State and local Associations, for the “three-way agreement” that requires members wishing to join a local association or NAR-affiliated MLS to also join and become dues-paying members at the State and National level.
Well, this week we learned that the Phoenix Association of REALTORS® in Arizona will begin offering an MLS-only membership option to non-REALTOR® real estate agents who choose not to be affiliated with NAR. According to Real Estate News:
“Phoenix Realtors has rolled out a new initiative for area brokers that allows them to gain access to the MLS and legal forms without joining a Realtor association. Dubbed MLS Choice and aimed specifically at brokers, the program — offered at $249 annually — is less than half the cost of the traditional three-tier option, which includes membership in Phoenix Realtors, the Arizona Association of Realtors and the National Association of Realtors. Those who opt for MLS Choice will retain many of the benefits offered by Phoenix Realtors but cannot call themselves “Realtors” and will lose access to state and national association benefits, the organization notes … It’s a big move, signaling the local association’s desire to exert more control over its offerings to brokers and agents, and is billed as an effort to ‘evolve’ with the changing real estate landscape. It also comes on the heels of comments made by NAR President Kevin Sears at the recent NAR NXT conference, where he sought to rally the troops around Realtor associations and emphasized the importance of the local, state and national partnership. That partnership — particularly NAR’s ‘three-way agreement,’ which requires agents who join their local Realtor association to also join their state association and NAR — has come under fire in recent months … Andy Fegley, CEO of Phoenix Realtors, told Real Estate News that the formal rollout of the program was essentially a ‘modernization’ effort to ‘create a choice for brokers on how they wish to run their business.’ … ‘It is incumbent upon us to give real estate professionals the tools they need to conduct business in a fair and competitive way, and adding the forms to round out the offerings of MLS choice is important because up until we’ve done this, it hasn’t been a choice,’ he explained. ‘We want to make sure that we’re serving the entire real estate population because that should be the aim of all of us.’ … While Fegley said Phoenix Realtors ‘will always support NAR,’ he noted that the response to the new MLS Choice program has been well received by local brokers who tell Fegley it’s a ‘welcome option’ to offer their agents.”
(Source: realestatenews.com)
This also reminds me of a story we covered back in Episode 1, with the Park City Board of REALTORS® notifying NAR that they would no longer be enforcing the Clear Cooperation Policy among its members. I think these stories are just the first dominos to fall, and we’re going to see continued pushback against many of NAR’s policies, and different local boards across the Country rebelling against the norms that NAR is trying to keep in place.
The FHFA’s Title Waiver Pilot Program
Let’s shift gears over to the title waiver pilot program announced by the Federal Housing Finance Agency. According to a press release from the FHFA earlier this year:
“For many aspiring and current homeowners, closing costs represent a substantial affordability barrier to purchasing or refinancing a home. The Federal Housing Finance Agency (FHFA) continues to focus on ways Fannie Mae and Freddie Mac (the Enterprises) can responsibly reduce closing costs for homeowners in a safe and sound manner. Homeowners who want to refinance their mortgages are often surprised to learn that the out-of-pocket costs can make that difficult. One of those costs is a new lender’s title insurance policy that covers the lender, but not the homeowner. Lenders are permitted to sell mortgage loans to the Enterprises only if the lender warrants that the mortgage is a valid first lien that is free of any prior lien or encumbrance. While lenders are responsible for making sure title meets these requirements, lenders also are required to provide independent verification through either a legal opinion or a lender’s title insurance policy. Lenders purchase title insurance to protect the mortgage, but the costs are borne by the homeowner. Homeowners are not covered under lender’s title insurance. Instead, homeowners may choose to purchase their own, separate title insurance policy if they want title protection, also at their own cost. The recently approved title acceptance pilot will waive the requirement for lender’s title insurance or a legal opinion on certain low-risk refinance transactions where there is confidence that the property is free and clear of any prior lien or encumbrance. The title acceptance pilot will make it possible to test whether allowing lenders to sell these refinance loans is a responsible approach to reducing the closing costs incurred by existing homeowners. Lenders will also retain the option to provide evidence of clear title through other options, such as title insurance or an attorney opinion letter (AOL). And homeowners are always able to purchase their own title insurance policy or AOL, if they so choose. The pilot only impacts the requirement for a lender’s title policy or AOL and does not impact a borrower’s title risk, since it only applies to certain refinance loans where the borrower has title to the property already. As with any pilot undertaken by an Enterprise, this effort will be subject to robust oversight by FHFA to monitor the effectiveness of the pilot in meeting its desired outcomes.”
(Source: fhfa.gov)
As you can imagine, the title insurance industry is not too keen on this idea. According to the American Land Title Association:
“A coalition of 14 attorneys general sent a letter to the Federal Housing Finance Agency (FHFA) expressing concerns over their revived pilot program aimed at removing title insurance requirements from certain loans sold to Fannie Mae. The effort was led by Tennessee Attorney General Jonathan Skrmetti, who said, “the affordable housing crisis demands meaningful bipartisan solutions, not shortsighted regulatory overreach.” … The original pilot program, initially proposed by the Biden Administration, faced significant backlash from Congress and industry experts. Although abandoned last year, the FHFA recently reintroduced a similar program that continues to raise major concerns about potential fraud and harm to consumers nationwide. The letter emphasizes the critical role of title insurance in safeguarding homeowners from fraudulent activities and exploitation. In the letter, the Attorneys General state that contrary to the FHFA’s claims, the cost of title insurance is comparable to a monthly subscription to Amazon Prime and provides essential protection against catastrophic financial harm … “The pilot program will shift title risk on refinanced loans purchased by Fannie Mae from state-regulated title insurance companies to Fannie Mae itself,” the letter said. “Title insurance is a state-regulated industry, and homeowners will be better served if it stays that way. We call on the Agency to terminate implementation of this misguided pilot program.” … “An attorney general’s role is to enforce state consumer protection laws, and we at ALTA share the concerns raised by the 14 state attorneys general about the pilot program’s lack of transparency, the shift of title risk from state-regulated title insurance companies to Fannie Mae, and the impact on local economies,” said ALTA CEO Diane Tomb. “We applaud their call to terminate the pilot program.” … The attorneys general outlined several reasons why the revised pilot program should be terminated. First, the FHFA inappropriately approved the program without seeking public input, contradicting its own rule to determine if it serves the public interest. Additionally, the program solely benefits homeowners with “lower risk” refinance loans, neglecting the needs of first-time and low-income homebuyers. Furthermore, it fails to address the underlying barriers faced by these homebuyers, such as high interest rates and limited affordable housing supply. Moreover, the pilot program exposes homeowners to potential fraud and abuse, removes protections from liens and alternative claims of ownership, and forces them into an experimental claims resolution process with Fannie Mae, risking property sale or foreclosure. The program also threatens local economies by allowing Fannie Mae to sideline small businesses in communities.”
(Source: alta.org)
So a couple thoughts here … Because removing title insurance would shift the risk from an insurance carrier to Fannie Mae or Freddie Mac directly, Fannie and Freddie would assumeably price that risk into their model which would affect the rate to consumers. However, if they’re only allowing these title insurance waivers on what they deem to be the “lowest-risk” refinances, then that would make the remaining pool of policies covered by title insurance marginally more risky by deault, which theoretically would cause the rates for title insurance on the transactions that don’t get approved for the waiver slightly more expensive. There are a handful of potential downstream consequences here, but the potential pros and cons are all likely marginal at best. I don’t think this would make a big impact either way, positive or negative. At best, the closing costs associated with a refinance get slightly less expensive for a certain percentage of transactions.
Existing-Home Sales Rise
Well, it looks like the real estate market is finally in rebound mode, with existing home sales finally gaining ground. According to Inman:
“Annual existing-home sales rose for the first time in more than three years in October, according to the National Association of Realtors’ latest market report. Existing-home sales — which include single-family homes, townhomes, condominiums and co-ops — increased 3.4 percent month-over-month and 2.9 percent year-over-year to a seasonally adjusted rate of 3.96 million. The median home price increased 4.0 percent year-over-year to $391,600, with all four regions posting price increases. NAR Chief Economist Lawrence Yun said October’s performance provides hope the worst of the sales slump is over, as economic growth and stabilizing mortgage rates push homebuyers back into the market. “The worst of the downturn in home sales could be over, with increasing inventory leading to more transactions,” Yun said in a statement. “Additional job gains and continued economic growth appear assured, resulting in growing housing demand.”
According to the National Association of REALTORS®, existing home sales reached a seasonally adjusted annual rate of 3.96 million in October. This is welcome news, as 2023 saw the worst numbers for existing home sales in decades. The most recent peak was in 2021, with over 6 million existing home sales.
(Source: inman.com)
How Likely Is Another Real Estate Crash?
Every single year since I hear someone predicting that we’re in another housing bubble, and this is the year we’re going to see another real estate crash. According to HousingWire:
“The housing bubble crash theory has failed once again as we approach the end of 2024, but it’s always important to know why something didn’t happen. This week, we got the updated New York Fed credit data report and it shows the strong position of homeowners — especially in comparison to the years before the Great Financial Crisis … The chart below shows that the 2008 housing crisis started years before the 2008 recession. The credit markets were toxic back then, featuring loans with big recast payments which meant that you could have two people working full-time and still be at a credit risk. As you can see in the chart below, the credit markets broke in 2005, 2006, 2007 and 2008, and then the job-loss recession of 2008 started, which made things much worse. None of that action has been happening for 14 years because the credit market changed after the 2010 qualified mortgage rule. Now, most loans are 30-year-fixed mortgages and people’s wages rise almost every year. We had multiple refinancing waves in 2012, 2016, 2020 and 2021. Foreclosure data fell quarter to quarter in Q3.”
According to Logan Mohtashami with Altos Research:
“My crusade in the last decade was about ensuring lending standards are never eased because standards are already liberal today, but not crazy anymore. The reason I fought hard for this premise is that when we do have economic stress such as we saw early in COVID-19 and with the big burst of inflation, homeowners will be shielded with their boring vanilla 30-year fixed mortgages.”
So with the Ability to Repay and Qualified Mortgage rules that were put in place in the aftermath of the Great Recession caused by the ‘08 housing crash, lenders are actually required to verify that borrowers are likely to be able to make their loan payments – I know, what a concept – So the odds of us getting into another subprime mortgage meltdown are incredibly more remote. Not only does the average homeowner have a fixed-rate loan on very favorable terms, but they’re also sitting on a ton of equity.
“Something else to consider: over 40% of homes right now don’t even have a mortgage and the loan-to-value levels for those that do are under 50% on average. In 2008, the loan to value was nearly 85%. Also, the median downpayment data for this year is 15%, which means homeowners have more skin in the game than back then.”
(Source: housingwire.com)
November 26th Is The Final Hearing On Proposed NAR Settlement
Just a reminder that this week, on November 26th, is the final hearing for the proposed NAR settlement. Hopefully the judge overseeing the case grants approval for the settlement on that day, but he could take a day or two to make a final decision – Either way, we should definitely have an update to discuss on next week’s episode!
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