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.
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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 numbers don’t surprise Corey Burr, senior vice president at TTR Sotheby’s International Realty, who points to recent interest rate hikes driving up mortgage rates and pushing home sales to a lull.
“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.
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With prospective buyers wary of high mortgage rates and backing out of deals at a record rate, 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
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