Also very notable and potentially worrying: RISMedia’s Broker Confidence Index (BCI) just hit its lowest point of the year, falling to 6.2 in August as leading real estate executives brace for the traditionally slower months, with school back in session and inventory still frozen.
For the less optimistic out there, the fall and winter of 2023 are already starting to look just as dim and dark as 2022, with mortgage rates rebounding to recent highs and transactions continuing to trend lower.
While there are certainly signs of a downturn, looking deeper at broker sentiment (and other data) suggests that real estate markets might look very different between now and the spring compared to traditional winter slumps.
“The market is still strong for sellers that price their home right,” said one broker, who asked to remain anonymous. “Buyers are still in our market and a bit frustrated because inventory is so low. Our median sales price is up year-over-year.”
Overall, brokers polled in the BCI described a market that was in the process of rebalancing, not one in free-fall. Erin Cestero, president of the San Antonio division of JBGoodwin REALTORS®, said that one major challenge this year was beginning to alleviate another obstacle.
“Rising interest rates are slowing buyers and creating large increases in inventory in Texas,” she reported.
Jack Fry, broker/owner of RE/MAX of Reading in Pennsylvania, said pending sales and new listings both reached their highest point of 2023 for his company. Others were hopeful that their markets would open up with just a little relief on the inventory or rate front.
“Buyer demand is there, (but) not enough inventory,” said Tim Milam, CEO of Coldwell Banker Sea Coast Advantage in Wilmington, North Carolina. “Hopeful for lower rates soon.”
These dynamics skew sharply from what was happening in August of last year, when the free-for-all of a low-rate pandemic market contracted sharply against the Federal Reserve’s rate hike campaign.
A year ago, the BCI came in at 6.8, but brokers reported waning buyer confidence and concerns about the shaky macro environment as inflation peaked. Now, after a year of weathering these new post-pandemic conditions, the sense was that both consumers and real estate professionals are better prepared, and that the economy is on firmer ground.
“Buyers (are) undeterred by high rates,” claimed Sarah Drennan, executive vice president of Terrie O’Connor REALTORS® based in New Jersey. “(We see a) slight increase in housing inventory, (and) prices continue to rise.”
A brave new (home) world
As existing-home sales slump against the “rate-lock” effect, new constructions have taken center stage as a way for real estate professionals to get listings or find homes for their buyers. Traditionally only a fraction of total home sales (around 10% on average, pre-pandemic) are new-home sales, with the majority coming in the form of resale transactions.
That could be changing, with a surge in new-home sales as well as new constructions, permits and starts this year. At RISMedia’s 35th Annual CEO & Leadership Exchange last week at the historic Mayflower Hotel in Washington, D.C., new constructions were a huge focus, as a sitting U.S. senator called on brokers to prioritize new home builds.
This month’s BCI asked brokers to weigh in on how best to create new inventory in their markets—a topic that has long divided real estate professionals, academics and policymakers. While some proposals—converting empty office space for residential use, for instance—have received outsized media attention, these leading brokers homed in on another proposal.
Tax incentives—specifically some type of capital gains tax relief—was the consensus choice of brokers this month. The National Association of REALTORS® (NAR) is currently lobbying for this, in the hopes that even a temporary lifting of some taxes could quickly bring homes onto the market.
Only a minority of brokers pointed to zoning reform, builder incentives or the aforementioned efforts to convert office spaces as solutions. That is likely because those are mostly long-term projects that often take years to bear fruit, often dependent on the notoriously slow machinations of local government.
These initiatives are also more effective in certain localities—the Northeast, for instance, has long battled restrictive zoning and “NIMBYism” compared to the West, where builder incentives might better offset high land costs and regulation.