During the last period when the United States had high levels of inflation – the 1970s and early 1980s – inflation only ended when the Federal Reserve raised interest rates to all-time highs and limited money supply growth.
During this time, the following events took place:
- Sales of existing homes peaked in 1979 at 3.8 million and have not returned to that level of sales until 1996.
- The number of households increased by 23.3%, from approximately 80.7 million households to 99.6 million.
- The typical 30-year mortgage carried a double-digit interest rate until the mid-1990s.
- The Dow Jones Industrial Average peaked for inflation in mid-1966 and did not return to that level.
The average number of households that bought a house from 2011 to the end of 2019 was 4.51%. For the years 2020 and 2021, the average was 5.15% or 0.64% higher than the previous nine years.
Equivalent to the total number of households in 2021 (129.9 million) in the United States, the bulge in home sales based on these factors equaled 669,300 additional home sales above the previous nine-year average.
The median percentage of all households (renters and owners) who purchased a home each year over the past 43 years was 4.68%. Even in this scenario, the increase in the number of homes sold in 2020-2021 is in the hundreds of thousands.
What does this mean for brokerage firms and agents over the next few years?
Assuming inflation remains a top concern for the Federal Reserve, the next few years will see mortgage interest rates stay above 5-6%.
Home sales will not recover where they were in any of the years between 2018 and 2021 – certainly not the 2020-2021 levels. In fact, and again assuming it will take some time for the Fed to beat inflation, it could be many years before we see the level of home sales that we have seen at the 2020 level. -2021.
Now, the current level of home sales shouldn’t 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 close to the 6+ million we had in 2021.
Overcapacity of real estate agents
The industry has a large overcapacity of real estate agents, with nearly 1.6 million in the ranks. Expect that number to decline once the reality of declining home sales sets in.
As we have seen in past recessions, the most productive agents and teams will get higher shares of remaining business, making it harder 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 metric. Those with related services will benefit from multiple revenues and revenue streams, but even then, mortgage and settlement services business margins are also under tremendous pressure as these industries adjust to the new level of sales. of accommodation.
Major brokerages of all sizes, brands, models and regions will focus on the big areas: recruiting talent, developing talent and carefully managing the bottom line.
It’s funny, success in brokerage always comes down to these fundamentals. The only current exception is that brokerage firms must manage all of this in a home sales slump of uncertain duration and depth.
Steve Murray is Senior Advisor to Actual trends and partner of a brokerage consulting firm PSTN advice.
This column does not necessarily reflect the opinion of the editorial department of RealTrends and its owners.
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