Brokers across the country are seeing their confidence wane, as what many hoped would be a temporary spike in mortgage rates has dragged on through most of the year with a dearth of listings continuing to weigh on markets.
RISMedia’s Broker Confidence Index (BCI) fell for the third consecutive month, from 6.2 to 5.8, on track to reach last year’s lows just as rates climb past their peak from 2022.
“With inflation, people cannot afford homes with interest rates above 7%,” Mike Didier, broker/owner of RE/MAX United in Wisconsin, said succinctly.
As autumn arrives and school has resumed, it is difficult to parse out how much a slowing of activity can be attributed to regular seasonal factors, and how much is related to the higher rate environment and/or a long-simmering inventory crisis that has exacerbated affordability issues.
Brokers offered different assessments, with some saying that real estate has proved more resilient than expected given the circumstances, while others viewed these macro barriers as a problem that needs addressing before housing can open up again.
Ron Howard, VP of Sales for John R. Wood Properties in Florida, offered a mixed assessment that covered both these camps.
“The market continues to be stronger than anticipated,” he said, “but certain insurance and interest rate costs are causing some pause with some buyers and sellers, who would sell then buy. Low inventory still creates swiftly pending sales despite a small number of buyer pauses noted.”
While there could be relief in the near future if the Federal Reserve chooses to pause or even cut rates, there is also a strong possibility that the central bank holds rates higher for longer, meaning real estate businesses will simply have to adapt.
Todd C. Menard, CEO of West USA Realty in Arizona, added his voice to a refrain that a large number of brokers have echoed since early 2022: rates in the 6% – 7% range are not unusual, or untenable by themselves.
“Too many licensees/buyers were not adults when rates were 13% – 18%,” he explained. “So they perceive 7.5% as a crisis. Objective: buy now, refinance if rates were ever to return to 5.5%.”
Menard went even further, though, arguing that lower rates combined with the current scarcity of inventory could actually be a negative thing, depleting inventory and further disadvantaging buyers.
The Airbnb bubble
One area that has drawn mainstream attention when it comes to housing inventory is short-term rentals. Critics have argued that companies like Airbnb and Vrbo are worsening the ongoing crisis by turning properties that might otherwise serve first-time buyers or moderate-income renters into luxury vacation stays.
This past month, Airbnb made more headlines for several reasons—none of them positive. New York City began enforcing a new restriction that could effectively ban these types of rentals, seeking to prevent a further loss of affordable housing. Other cities are considering similar rules.
At the same time, rumors continue to swirl that the short-term rental market is on the verge of collapse, with revenues down (though by how much is disputed).
Could this be an opportunity for those who are looking to buy or sell homes? Brokers polled by RISMedia were split on whether any shift in the short-term rental market was affecting buyers and sellers today. About half said they saw no change in their markets, while the rest mostly saw the opportunity for buyers rather than sellers—that is, people still looking to turn some or all of their new property into a rental asset.
Besides lenders allowing the use of rental income to qualify for mortgages, some jurisdictions are actually loosening their restrictions on ADUs (accessory dwelling units) or equivalent structures, in an attempt to alleviate housing shortages.
This result might also imply that a so-called crash in the Airbnb market might be overstated, if brokers are still seeing buyers eager to cash in on those properties.
But what about these larger regulator issues? How do real estate business leaders see Airbnbs, and the movement to ban or restrict them?
Again, brokers polled by RISMedia were divided. Almost exactly half said they were not concerned about these short-term rentals, and didn’t see them as a problem in their market.
At the same time, not a single broker said they would support an outright ban in their market. Instead, the consensus was for further limitations on the number or location of short-term rentals—something many cities, counties and states have already put in place.
The National Association of REALTORS® has not adopted an official position on restricting short-term rentals.
