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When the Federal Reserve flirted with the idea of cutting rates in March, the real estate industry largely felt that the worst part of this transaction downturn was in the rearview mirror.
Today, their feelings are a bit more complicated.
A growing number of brokerage leaders in late March reported a worsening outlook on capital markets — an element of the economy to which real estate is doubly exposed.
This key insight — explored at length in the full report below — is the first finding from the March edition of the Inman Intel Index, a survey of more than 1,000 real estate professionals that closed on Monday.
In the weeks ahead, Intel will explore a host of findings from the latest results of the survey, which was the first conducted in the wake of the commission-lawsuit settlements by the National Association of Realtors and Compass.
The survey also delved deeply into an issue that brokerage leaders say is already becoming one of their top challenges, and may only become more difficult in the coming year: recruiting and retaining high-performing agents. Intel’s deeply reported series on the 2024 recruiting wars drops next week.
But first, learn more about what brokerage leaders think will happen in the capital markets — and why that question remains a high-stakes proposition for the entire industry.
Two steps forward, one step back
Not all brokerage leaders feel like they need access to capital in a pinch.
If you’re not in the process of opening a new office or acquiring another brokerage, the notion of taking out a loan might not feel like the most pressing concern.
Still, many brokerage leaders keep tabs on capital markets. If nothing else, they’re linked to the same financial system that determines mortgage rates, and therefore influences transaction volume.
Here’s what Intel learned from the hundreds of brokerage leaders who have replied to the publication’s monthly sentiment survey since the start of the year.
- Considering cost and accessibility, 42 percent of brokerage leaders in March felt better about raising capital than they did at the same time last year, compared to 53 percent who said the same in January.
- Brokerage leaders who felt worse about the prospect of raising capital made up 49 percent of this group in March, up from 38 percent.
- The remaining share of brokerage leaders selected the “other” response choice, with most of these clarifying that the question was not applicable to their respective businesses.
In short, brokerage leaders have flipped on this question. Where a majority in January felt the capital situation was improving, that share dipped substantially over the ensuing months.
What gives?
For clues, we can look to the Federal Reserve’s shifting timeline for a potential rate cut.
In January, many observers expected the Fed to begin lowering interest rates as early as its March meeting — lowering the cost of taking out many types of debt in the process.
But those earliest rate cuts haven’t yet materialized. And this delay has affected not only the present capital-raising environment, but also the outlook of business leaders for the year ahead.
A Fed ‘decoupling’?
To better understand the factors weighing on brokerage leader decisions, Intel sought feedback on their assumptions about capital markets in the months ahead.
These leaders remained generally optimistic that capital markets would improve.
But as Intel has documented in a number of key areas of real estate, optimism in capital markets has only weakened since the start of the year.
- Of the brokerage leaders Intel surveyed in March, 50 percent leaned toward the idea that capital would be easier or cheaper to acquire 12 months from now than it is today.
- As recently as January, however, 61 percent of the brokerage leaders surveyed had shared this optimistic outlook.
For many industries, the prospect of economic growth appears to be increasingly decoupled from the Fed’s actions.
Even as rate cuts were pushed out months into the future, stock in the nation’s 500 largest publicly traded companies has risen by more than 9 percent since the beginning of the year.
But for real estate companies, rate cuts are about much more than simple access to cheaper capital. Their bread-and-butter revenue source — home listings and transactions — hinge largely on clients finding the prevailing mortgage rates attractive enough to wade into the market.
Perhaps for this reason, brokerage leaders have barely budged since the start of the year in their insistence on the importance of rate cuts.
- The share of brokerage leaders who told Intel that the housing market’s recovery relied at least “a good deal” on multiple interest-rate cuts this year was 65 percent in March.
- That’s a decline of only 3 percentage points from January’s response share, and well within the range of normal fluctuations from month to month.
In other words, if the real estate industry is “decoupling” from the actions of the Fed like much of the rest of the economy, the effect may be only slight or nonexistent.
Intel will continue to track these sentiments in the months to come.
Methodology notes: This month’s Inman Intel Index survey was conducted March 19-April 1, 2024. The entire Inman reader community was invited to participate, and Intel received 1,009 responses. Respondents for this survey were directed to the SurveyMonkey platform, where they self-identified their profiles within the residential real estate market. Respondents were limited to one response per device, but there was no limitation to IP addresses. Once a profile (residential real estate agent, mortgage broker/banker, corporate executive/investor/proptech, or other) was selected, respondents answered a unique set of questions for that specific profile. Because the survey did not request demographic information for age, gender or geography, there was no data weighting. This survey will be conducted monthly, with both recurring and unique questions for each profile type.
