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Real estate companies that might have been hoping for a sharp mid-year turnaround in 2023 were let down in a big way as the depressed market dragged on into a second winter.
They may not have to wait much longer.
The freefall in real estate transaction revenue appears to have been arrested in recent months as existing-home sales found their footing and Federal Reserve officials signaled they may soon be done holding interest rates high.
This may pave a more realistic path to a long-awaited uptick in real estate commissions in 2024, an Intel analysis suggests.
To explore where the market stands — and establish a framework for where it may be headed — Intel analyzed a combination of home sales and prices from the National Association of Realtors to arrive at a rough estimate of the pool of available commissions in the U.S. home market.
- The estimated commission revenue pool from existing-home sales was down less than 3 percent year-over-year in December, according to Intel’s analysis.
- That gap had closed greatly since April when there was a 30 percent annual decline in estimated commission revenues.
If these trends continue, the real estate industry may have a realistic path to achieving year-over-year revenue growth in the spring and summer — a development that would mark the end of the downward spiral it has weathered for the last two years.
Read the full report below.
How much money is out there?
Reliable measures of total real estate commissions can be tough to find — especially for tracking on a month-to-month basis.
To get an idea of the bigger picture, Intel consulted sales and price data from NAR and other sources. Intel’s estimate was based on the raw number of existing-home sales and average sale price for each period, plus an assumption that commission is approximately 5.5 percent of each transaction.
This exercise came with a clear takeaway: Potential revenues in the second half of 2023 looked much like they did during the same period the previous year. And that’s especially true for the closing three months of the year.
- Intel estimates the potential commission revenue pool for the existing-home market at $473 billion in the final three months of 2023 — a “mere” $18 billion drop from the closing months of 2022.
Compare that $18 billion drop with the $179 billion freefall from the spring months of 2022 to the spring market of 2023.
- Real estate businesses potentially raked in an estimated $735 billion in the spring months of 2022, even as mortgage rates rose and observers pointed to signs that a once-red-hot market was beginning to cool.
- Exactly one year later, the pool of existing-home sale commissions was only $557 billion.
A broader vantage point
Using Zillow’s tracking of median prices and the number of listings that went pending each month paints a similar picture, and an interesting historical picture emerges.
Chart by Daniel Houston
You can see in the chart above several key moments in the housing market’s strange post-pandemic reality:
- The downward jolt in potential revenues that occurred in the early weeks of the pandemic shutdowns in 2020
- The upward spike the next year as 2021’s numbers are compared to that initial pandemic shock
- The period of robust year-over-year revenue gains that petered out in the summer of 2022
- And a protracted downturn in potential revenue beginning in the fall of 2022 and deepening throughout the first half of 2023 — which may now be bottoming out.
NAR’s own measure of pending home sales — a more forward-looking indicator than completed transactions — saw an 8 percent seasonally adjusted jump from November to December alone.
- This partly informs NAR’s forecast that 4.62 million existing homes will sell in 2024.
- This projection, if accurate, would represent a 13 percent rise in this class of real estate transaction.
The eventual numbers may still defy predictions made in January. But judging from the market’s recent trajectory, at least, a turnaround of some kind may well be on the table.
