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As the real estate industry continues to struggle with the fallout from the commission lawsuits, increased mortgage rates, and a significant decline in the number of transactions, Patrick Stone, chairman and founder of Williston Financial, is optimistic about what’s ahead as we wrap up 2024 and move forward into 2025 and 2026.
For almost two decades at Inman Connect, I’ve enjoyed hearing Stone’s take on what’s ahead for the real estate industry — because he’s usually right. I recently interviewed him to discuss what’s ahead in terms of mortgage interest rate reductions, where he sees the industry heading as we move into 2024, plus his current concerns about the industry.
Mortgage rates are coming down, but are still inflated
Stone explained that while some people are speculating that there will be a meaningful drop in rates, his prediction is that we will see a rate reduction of 25 basis points in September and another 25 basis point drop in December. That would bring the rate down to a bit under 6 percent by the beginning of 2025.
Nevertheless, Stone argues that mortgage rates are inflated.
“The 30-year mortgage is still inflated over the historic norm, 1.5 to 2 points above the 10-year T bill. If it was running that right now, we’d have mortgage rates at 5.3-5.8 percent. What happens when you have inflation is that that range goes north. When you have a significant reduction in inflation, that comes back into the norm of 1.5 to 2 percent,” Stone said.
“So, the Fed bringing down the Fed rate will reduce inflationary expectations. It will remove some of the excess between the 10-year T bill and the 30-year fixed-rate mortgage. And again, I think the 30-year fixed rate mortgage will go under 6 percent in early 2025.”
What to expect from the upcoming presidential elections in November
Stone has been tracking the impact of presidential elections for many years.
“If you look at it historically, presidential elections normally have no impact on the number of residential real estate sales. Instead, residential real estate is really a function of need, desire and affordability,” Stone said.
“The presidential election creates lots of background noise. It has pertinence in the sense that it can and will impact interest rates, but historically the presidential election itself has no correlation.”
When I asked Stone about possible differences between a Harris vs. Trump administration, he said, “I just don’t see a meaningful impact on the residential real estate market right away.”
When I queried him further about both candidates talking about getting more new homes built, his response was, “You know that’s talked about in every election, isn’t it?”
Builders are optimistic about the need and the demand for new housing
Stone noted that most of the major national builders he has been talking with are optimistic about the need and demand for homes.
“They’re still concerned about interest rates and inflation, so that is abating. I think they’re gearing up or planning to gear up.” Stone said. “I’m hearing a lot of people talking about meaningfully increasing the amount of new home production, so I hope that’s going to be the case.”
Prices are tied to local markets — not to national averages
Stone pointed out that a major problem with the national media is they apply what is happening or what they think is happening on a national basis.
“We have had a meaningful slowdown in price appreciation overall, with some markets going negative and some markets positive.” Stone said. “A lot of places had an extraordinary influx of people, so prices went up dramatically and now they’re readjusting. I don’t think we’re going to have a crash at all — we’ll have readjustments.”
In terms of price appreciation, he said, “I think this year we’ll run somewhere in the 4 percent range overall nationally, and then we’ll get back to our historical average of about 3.6 percent. I think we run between that and 5 percent for the next 20 years unless we have something like the pandemic again.”
Concerns about the ‘NAR dynamic’
Stone shared his concerns about the NAR settlement, what he called the “NAR dynamic,” and its impact.
“I’m not advocating for this, but it does appear to me that the NAR dynamic could result in a lessening of commissions for Realtors and a significant reduction in the number of Realtors.” Stone said.
“If, in fact, that happens and you see a meaningful reduction in the number of Realtors, there will be a corollary reduction in some of the entities that service the process, such as title companies, mortgage companies and so forth. If there are fewer Realtors, they will use fewer vendors, regardless of the amount of business.”
In terms of how this impacts mortgage and title services in particular, Stone said, “The title industry is very used to adjusting personnel costs based on volume. So, I think most of the companies are positioned or ready to do so if they need to. The mortgage industry may be a little bit less, but the large mortgage players have also seen this movie before.”
When I asked about how far the number of Realtors might drop by 2026, he replied, “This is just a guess, but maybe down to a million.”
Stone is concerned about the GSEs using automated appraisals (AVMs)
When I asked Stone about whether the 2024 drop in sales volume to about 3.91 million would impact the number of appraisers, he explained why he felt there would be no change.
“Appraisers got so stretched out during the pandemic that it could take up to 10 times longer to get an appraisal. The appraisal requires a commitment to learning a skill set and developing relationships. It’s not easy to get in or out of being an appraiser, so the number of appraisers won’t change,” Stone said.
“But you are seeing some of the GSEs and some of the regulatory agencies encouraging automated valuations. I’m going to be straight up with you: I worry about that. Just for fun, run an AVM for your home on Redfin and run an AVM on Zillow. You’ll be stunned at the difference. So, there’s a lot of variation in AVMs, and I worry a little bit about relying too heavily on them at this point.”
What’s ahead in 2025 and 2026?
Provided the Fed cuts interest rates, Stone believes things will improve dramatically in 2025 and 2026.
“Assuming the two Fed rate cuts that I predicted earlier, I see volume next year going north of 5 million, and then in 2026, if nothing changes negatively, I think of it reaching the high 5 million range,” Stone said.
“The all-time record for sales was in 2005 when the sales volume reached 7.2 million. I think the average mortgage rate that year was 5.6 percent. We now have an affordability issue because the price of homes has gone up so much. So, it isn’t a direct correlation, but I do see the volume getting up north of 5 million next year, and then maybe the high fives in 2026.”
Stone’s final takeaway was, “I encourage everybody to pay attention to everything going on. Ask questions, talk to people, be prepared to do whatever you need to do.”
Let’s hope that Stone’s prognostications are correct. If so, the inventory shortage and high interest rates will soon be relegated to the rearview mirror in 2025 and 2026, and the market will be better for everyone.
Bernice Ross, president and CEO of BrokerageUP and RealEstateCoach.com, and the founder of RealEstateWealthForWomen.com is a national speaker, author and trainer with over 1,500 published articles.