Opinion: Steve Murray’s bearish look at future housing sales

During the last period when the US had elevated levels of inflation — the 1970s and into the early 1980s — inflation only ended when the Federal Reserve raised interest rates to unheard of heights and restricted growth of the money supply.

During that time, the following events took place:

  • Existing home sales peaked in 1979 at 3.8 million and did not get back to that level of sales until 1996.
  • The number of households rose by 23.3%, from an estimated 80.7 million households to 99.6 million.
  • The typical 30-year mortgage carried an interest rate that was in the double digits until the mid-1990s.
  • The Dow Jones Industrial Average hit an inflation-adjusted high point in mid-1966 and did not get back to that level.

The average number of households that purchased a home from 2011 until the end of 2019 was 4.51%. For the years 2020 and 2021, the average was 5.15% or .64% higher than the previous nine years.

Equated to the total number of households in 2021 (129.9 million) in the US, the bulge in home sales based on these factors equaled an extra 669,300 home sales above the average of the previous nine years.

The median percentage of all households (renter and owner) who purchased a home each year for the last 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 brokerage firms and agents in the next few years?

Assuming that inflation remains a focus of the Federal Reserve Board, the next few years will see continued mortgage interest rates above 5% to 6%.

Housing unit sales will not recover to where they were in any of the years between 2018 to 2021 — certainly not the 2020-2021 levels. In fact, and again assuming it will take the Fed some time to conquer inflation, it could be many years before we see the level of housing sales that we saw in the 2020-2021 level.

Now, the current level of housing sales is not likely to be as bad as we saw in 2008-2010, which saw an average of 4.2 million existing home sales. But, it will not be near the 6+ million we had in 2021.

Overcapacity of Realtors

The industry has a large overcapacity of Realtors, with nearly 1.6 million in the ranks. Expect that number to decline once the reality of the decline in housing sales sets in.

As we have seen from past downturns, the most productive agents and teams will garner higher shares of the remaining business, making it tougher for marginal producers to stay competitive.

Brokerage firms will be under new stress

If the past is any guide, brokerage firms will be under new stress, with lower gross margins than in any previous downturn and no path to increase this important measurement. Those with related services will have an advantage of multiple revenues and earnings streams, but even here, the margins in the mortgage and settlement services businesses are also under enormous pressure as those industries right size to the new level of housing sales.

Leading brokerage firms of all sizes, brands, models, and regions will be focusing on the big areas: Recruiting talent, developing talent, and managing income statements carefully.

Funny, success in brokerage always comes back to these fundamentals. The only exception currently, is that brokerage firms have to manage all of this in a housing sales slump of uncertain time and depth.

Steve Murray is a senior advisor to RealTrends and a partner with brokerage consulting firm RTC Consulting.

This column does not necessarily reflect the opinion of RealTrends’ editorial department and its owners.

To contact the author of this story:
Steve Murray at smurray@realtrends.com

To contact the editor responsible for this story:
Tracey Velt at tracey@hwmedia.com

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