Serah Louis
·4 min read
Homeowners are staying put while new buyers are grappling with persistently high housing costs this year. Inventory is tight and home sales have hit multi-decade lows.
But if you need yet another sign of turmoil, just ask the people whose livelihoods depend on the real estate market how they’re doing.
Don’t miss
Commercial real estate has outperformed the S&P 500 over 25 years. Here's how to diversify your portfolio without the headache of being a landlord
Find out how to save up to $820 annually on car insurance and get the best rates possible
Finish 2023 stronger than you started: 5 money moves you should make before the end of the year
According to a monthly report by Alignable, 45% of real estate agents who own their firms said they had trouble paying rent on their offices in November. That’s 5% higher than in October and 10% higher than September's reading.
The realtors who participated in the study reported that persistently high interest rates — the average 30-year fixed-rate mortgage remains at about 7% — have made home sales more difficult to finalize.
The numbers don’t surprise Corey Burr, senior vice president at TTR Sotheby’s International Realty.
“I think that the Federal Reserve has put us in this spot where they essentially froze up the residential real estate market by holding interest rates low for so long, and then increasing them so much so quickly,” Burr says.
“It's created incredible distortions in our marketplace.”
Slow sales hurting realtors
Burr, who’s worked over 36 years in the real estate industry and initially had his own firm in Chevy Chase, Maryland, said he knows what it’s like to experience the highs and lows of the housing market when you own a small business.
“We are in a spot in the real estate cycle that is hardest for brokerages, particularly the smaller ones who have less market share, and who have fewer assets than the larger brokerages to ride out the storm,” Burr says.
Read more: Owning real estate for passive income is one of the biggest myths in investing — but here's how you can actually make it work
With prospective buyers wary of high rates and backing out of deals at a record pace, home sales have been extremely sluggish over the past year, putting more agents out of work or reducing their income.
In October, pending home sales were down 1.5% from September and 8.5% from last year — marking the lowest pending-sales figure since the National Association of Realtors began tracking that statistic. It’s even worse than during the 2008 financial crisis.
Burr also expects the number of realtors to shrink across North America as the market contracts.
Over 60,000 agents left the industry in the six months leading up to May, according to NAR data analyzed by Reventure Consulting, which provides real-time data on the housing market.
Market may improve next year
Although mortgage rates have been retreating over the past few weeks, they’re not low enough just yet to convince homeowners who previously locked in 2% to 3% rates to put their homes for sale and relocate, keeping inventory in a crunch, Burr says.
He also notes that the period between early November to early January tends to be quite slow, but anticipates an uptick in the spring if mortgage rates continue to decline.
As inflation subsides, many experts are predicting the Fed has reached the end of its tightening cycle, and might even introduce some rate cuts in 2024. This could potentially drive mortgage rates even lower, providing a much-needed reprieve for the housing market.
Some analysts are indeed forecasting lower mortgage rates in the next year. NAR chief economist Lawrence Yun predicted in early November that mortgage rates could hover between 6% to 7% next spring and home sales could tick up 13.5% in 2024
What to read next
You can cash in on prime real estate for as little as $20. Here’s how.
This Pennsylvania trio bought a $100K abandoned school and turned it into a 31-unit apartment building — how to invest in real estate without all the heavy lifting
Rising prices are throwing off Americans' retirement plans — here’s how to get your savings back on track
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
