During the last period when the US had high levels of inflation – the 1970s and early 1980s – inflation only ended when Federal Reserve raise interest rates Unheard of rises and restricted growth in the money supply.
During that time, the following events occurred:
- Existing home sales peaked in 1979 at 3.8 million and have not returned to this level of sales Until 1996.
- The number of households increased by 23.3% from 80.7 million to 99.6 million.
- A typical 30-year mortgage carried an interest rate of double digits until the mid-1990s.
- The Dow Jones Industrial Average It reached an inflation-adjusted high point in mid-1966 and has not returned to that level.
The average number of households that bought a home from 2011 through the end of 2019 was 4.51%. For 2020 and 2021, the average was 5.15%, or 0.64%, higher than the previous nine years.
The total number of households in 2021 (129.9 million) in the United States equals the increase in home sales based on these factors equal to 669,300 additional home sales above the previous nine-year average.
The average percentage of all households (renter and owner) who purchased a home each year for the past 43 years was 4.68%. Even under this scenario, the increase in the number of homes sold in 2020-2021 was in the hundreds of thousands.
What does this mean for brokerages and agents in the next few years?
Assuming inflation remains the Fed’s focus, the next few years will see mortgage interest rates remain above 5% to 6%.
Residential sales will not recover to where they were in any of the years between 2018 and 2021 – certainly not the 2020-2021 levels. In fact, assuming the Fed will take some time to beat inflation, it may be many years before we see the level of home sales that we saw at the level of 2020-2021.
Now, the current level of home sales isn’t likely to be as bad as we saw in 2008-2010, which saw an average of 4.2 million existing home sales. But, it won’t be near the 6+ million we had in 2021.
Overcapacity of real estate brokers
The industry has significant excess capacity of brokers, with nearly 1.6 million in the ranks. We expect this number to decline once the reality of the decline in home sales kicks in.
As we’ve seen from past downturns, most Agents and production teams It will earn higher shares of the remaining business, making it difficult for marginal producers to remain competitive.
Brokerage firms will come under new pressure
If the past is any guide, brokerages will be under new pressure, with gross margins lower than in any previous downturn and no path to increase this important measurement. Those with related services will have the advantage of multiple revenue and profit streams, but even here, margins in the mortgage and settlement services business are also under tremendous pressure as these industries fit in with the new volume of home sales.
Leading brokerages of all sizes, brands, models, and regions will focus on the big areas: talent recruitment, talent development, and careful management of income data.
It’s funny how successful mediation always comes down to these basics. Currently the only exception is that brokerages have to manage all of this with home sales plummeting due to uncertainty in time and depth.
Steve Murray is one of my senior advisors RealTrends And partner with a brokerage consulting firm RTC Consulting.
This column does not necessarily reflect the opinion of the editorial department of RealTrends and its owners.
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