When mortgage rates come down it’s time for a party. When home sales are up, bring out the marching bands. When prices hit a record high, watch out for the fireworks. But when the numbers don’t tell a great story, somehow they’re buried. If you believe that everything’s going to be alright, perhaps you should stop reading here. If you’re brave enough for a dose of reality, please read on.
I know that much of the talk and press lately has been about the commission settlements and required changes to buyer-broker compensation. Better late than never, this should have been a serious topic for the past three years. It was never going to simply blow over.
To counter that bad news and the fiction that it won’t materially impact brokerage revenue, any downward movement in mortgage rates has been lauded as celebratory. As if that alone will save the industry from financial hardship. It won’t.
But what’s seemingly been buried are the latest home sales numbers and seasonally adjusted annual homes sale figures. To put a positive spin on it, the National Association of Realtors® decided to go with a jubilant headline for their latest press release: “Existing-Home Sales Advanced 1.3% in July, Ending Four-Month Skid.” That’s an interesting interpretation and certainly much better than “July numbers didn’t suck as bad as June!”
The key highlights tell a bit of a different story.
The seasonally adjusted annual sales rate is down to 3.95 Million
Existing home sales are down 2.5% from July 2023
The inventory of unsold homes ticked up 19.8% from last year
Even with all of this, home prices are up 4.2% year-over-year
Here’s what it looks like in a chart
Putting this in perspective, a year ago the expectation (in July of 2023) was an annual home sales rate of 4.05 Million and hit an actual sales rate of 4.09 million for the year, the lowest level in 30 years. If we assume the final numbers come in slightly better than the July estimate (maybe 3.99 million sales) that’s an $800 Million reduction in commission revenue even with prices up to historic levels.
While a one percent reduction in industry-wide commissions isn’t earth-shattering, with many / most brokerages operating at a 3% net margin or less, it’s bound to have an impact. The effects will be felt most but the most vulnerable. Consider your business and what another hit, worse than last year, will do to your finances. If you’re concerned, you should be. But there are ways to mitigate the risks and to potentially turn uncertainty into upside.
Comments