A lot has happened to the state of the housing market heading into March. Despite a rate cut not seeming likely until June at the earliest, mortgage rates have briefly managed to drop below seven percent. Meanwhile, the lawsuit against the National Association of Realtors (NAR) has reached a settlement that could radically change the housing market moving forward. All the while, new home construction and home builder sentiment continues to rise heading into the end of the first quarter.

According to the National Association of Homebuilders’ (NAHB) Housing Market Index (HMI) for March 2024, homebuilder sentiment has risen to eight-month highs heading into the next quarter.

The index, which gauges builder perception of current and future expectations for single-family home sales, found that sentiment for current home sales rose four points to 56 in March. A score above 50 generally indicates that more builders view the conditions as being “good” rather than “poor.”

Sales expectations for the next six months also rose two points to 62, while the traffic of prospective buyers also increased two points to 34, signifying that conditions in this category are still being interpreted as “poor.”

Homebuilder sentiment is apparently so high heading into March that many have also begun to axe their price cut incentives in order to increase sales, especially now as mortgage rates have dropped back below 7%, giving the housing market a brief kick in activity. In March, only 24% of builders reported cutting home prices compared to the 36% that were doing it back in December 2023.

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With that said, prices are still dropping, with the current rate of 9% holding steady for the ninth straight month. Additionally, homebuilders are still leveraging multiple sales incentives to drive purchases, about 60% of all homebuilders, to be exact.

“With the Federal Reserve expected to announce future rate cuts in the second half of 2024, lower financing costs will draw many prospective buyers into the market,” said NAHB Chief Economist Robert Dietz. “However, as home building activity picks up, builders will likely grapple with rising material prices, particularly for lumber.”

This positive sentiment comes as new construction numbers hit the highest they’ve been in the past two years.

According to a report from the Commerce Department, overall housing starts increased 10.7% to a rate of 1.1521 million units in February while single-family permits rose 1.0% to a rate of 1.031 million units. Multi-family permits, meanwhile, rose 2.4% to a rate of 429,000 units. In total, building permits climbed 1.9% percent to a rate of 1.518 million units.

The number of houses approved for construction, meanwhile, increased 0.4% to 270,000 units in February. Overall housing completions soared 19.7% to a rate of 1.729 million units, the highest level since January 2007, while the completions for single family housing surged 20.2% to 1.072 million units, the highest level since November 2022.

During this time, the single-family homebuilding backlog fell 1.4% to 141,000 units. According to realtors, housing starts and completion rates need to be in a range of 1.5 million to 1.6 million units per month over an extended period of time in order to fill the current deficit in inventory.

NAR Settlement Signals Potential Shift in the Housing Market for Buyers

During this period, the massive class-action lawsuit against the NAR reached a settlement that could spell significant changes in how homes will be bought and sold moving forward, which experts split on how beneficial these changes could be to homebuyers.

The details of the settlement focus primarily on a longstanding policy that made it so selling agents were barred from listing properties on the Multiple Listing Services (MLS) database unless they explicitly stated the compensation the buying agent could expect to receive.

In the United States, the arrangement of agent commissions has been that selling agents would receive roughly 5% of a home’s value in commissions, with roughly half being given to the buying agent following the home’s sale. These commission costs were often baked into the cost of the home and were mainly paid by the sellers of said home.

Primary critics of the policy stated that the arrangement of commissions represented a massive conflict of interest between agent and buyer, which heavily incentivized both buying and selling agents to try and get the property to sell for as much as possible to collect as large of a commission as possible.

Additionally, critics alleged that the policy made it so that buying agents would actively discourage buyers from looking at homes with lower buying agent commissions. This criticism has since been corroborated by data from Redfin, which showed that homes with lower buyer agent commissions not only took longer to sell, but often never sold at all.

The NAR has denied any wrongdoing following the ruling.

This new policy, which will go into effect in July will make it so listing agents no longer have to guarantee a buying agent commission in the listing.

While the true ramifications of this policy shift are yet to be determined, some experts have speculated this could lead to a decoupling of commission costs which could in turn lead to decreases in home prices. However, skeptics like Redfin CEO Glenn Kelman, are doubtful that this ruling will lead to any significant change from how the market currently looks for buyers.

Others, meanwhile, have noted that this could ultimately lead to buying agents having their clients foot their expected commission rate, leading to it being even more difficult for cash-strapped parties to buy a home. However, this would still potentially lead to a reduction in commissions and thus a reduction in home prices overall.

This change in policy could also potentially make the costs of homebuying more transparent for the buyer, leading to heightened sensitivity around the cost of commissions, should the buying agent commission be offloaded onto the buyer.

Overall, however, while all agree that it will take multiple years for the real effect of the changes to settle in, the majority sentiment is hopeful improving the housing market moving forward.

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