Rick Ellis, Vice President Global Development at Anywhere Brands, looks at some potentially volatile signs for the road ahead, and how some brokers and agents are proactively adapting to challenging headwinds.
The last 18 months have been a true whirlwind for real estate. We’ve seen one of the hottest markets in decades—even in the midst of a once-in-a-century pandemic. While many in our industry have enjoyed record growth, the market has continued to evolve throughout 2022 and most likely, into the future.
Some factors include:
- Lack of affordable housing
- Not enough inventory
- Rising interest rates
Let’s examine these factors and try to determine what may be coming next.
Lack of affordable housing and inventory makes conditions difficult
2020 was one of the best years the housing market has ever seen. But as it turns out, it was just a warmup for 2021. Prices rose 19.2% in January 2021 from the year before. That’s up from an 18.9% increase in December, according to data from the S&P CoreLogic Case-Shiller US National Home Price Index. And that’s just the national average. In places like Phoenix, Tampa and Miami, the annual increases were even higher.
Based on data from Black Knight, Business Insider reports that “A mortgage payment on an average-price home with a standard 20% down payment, 30-year mortgage now adds up to 31% of the median American household’s income.” That’s the largest share since 2007—and you may recall what happened in 2008.
Lack of inventory has been another issue, particularly in the early part of the year. New York Times headlines such as “The Housing Shortage Isn’t Just a Coastal Crisis Anymore” tell you all you need to know. To quote that article, “Freddie Mac has estimated that the nation is short 3.8 million housing units to keep up with household formation.” Fortunately, signs are indicating that the inventory shortage may be turning around.
Finally, interest rates. They’re going up, and mortgages are already starting to feel the effects. In mid-July of 2022, mortgage demand hit the lowest point since 2000. Buyers have been forced to deal with high—possibly overinflated—housing prices for quite some time now. Now with interest rates skyrocketing—with more rate hikes likely to come—buyers are losing purchasing power every week.
These numbers are sobering. And likely point to some volatility down the road. However, real estate agents and brokers are resourceful, and know how to adapt to challenging environments. Here are some of the tactics proactive brokers and agents are employing to push back against the headwinds:
Brokerages are cutting costs and consolidating: Here’s a trend that looks like it will be accelerating in the near future. Companies are re-examining their need for brick-and-mortar space. With so many people working from home, offices are being combined, brokers are renegotiating their leases to eliminate square footage, and unused offices are sublet. Look for more and more brokers to start running leaner operations—which is not a bad thing.
Brokers and agents are offering ancillary services: Increases in costs, decreases in commissions and higher agent splits are causing many brokers to diversify their income streams by adding other services including:
- Title preparation
- Mortgage offerings
- Staging and sale preparation
- Property management
- Cash offers
- Real estate marketing
- Lead generation
Targeting higher priced listings: Since the start of the pandemic, the share of homes worth more than $1 million has doubled! That’s nearly double the figure from two years before. To take advantage of the higher percentage of high-priced homes, brokers are turning to affiliations, branding, alliances, and other avenues to quickly take advantage of all these new opportunities.
Mergers and Acquisitions: Finally, many real estate broker/owners can see what’s happening. It’s no secret that large brokers are growing rapidly. In fact, more than 60% of the nation’s volume is transacted by the top 20 largest real estate brands. Many brokers have been taking the opportunity to sell to firms with greater reach and resources. This enables the broker to be more competitive in this time of change.
Other brokers are taking opportunity to acquire companies that can be combined to increase market share.
Business has been good for brokers and agents. But we can’t deny that there is an industry-wide slowing. However, as we’ve seen, the people in our industry are tough and resilient, and I have no doubt they will adapt and find a way to minimize potentially adverse conditions.
Author and speaker Brian Tracy said it best, “In a time of rapid change, standing still is the most dangerous course of action.”
Rick Ellis is a 30+ year industry expert in real estate growth through Mergers & Acquisitions, affiliation, corporate finance and high level recruiting. He assists luxury real estate firms in premium markets with their growth strategies and consults owners to increase their market share, sales, profits and business value.