Inflation. Interest rates. Inventory shortage. Add to that a court decision that found major real estate players guilty of price fixing—along with the contagion of copycat lawsuits that ensued—and 2023 goes down as potentially the most trying year in the history of residential real estate.
Plagued by a post-pandemic housing recession that is stretching into 2024, it’s no surprise that respondents to RISMedia’s 36th Annual Power Broker Survey reported even further declines in sales volumes and transactions during 2023. The Top 1,000 firms collectively report a decrease of more than $3B over 2022, and 700,000 fewer transactions.
But, as the saying goes, it’s always darkest before the dawn, and the adage certainly rings true for the majority of this year’s Power Brokers. While they report a difficult start to the year, most expect brightening skies on the horizon as 2024 unfolds. Plodding through a real estate recession, positive markers dotting the road ahead are giving them hope. Therefore, while the majority of respondents (54%) to this year’s survey describe their markets as “Challenged,” the second-largest contingent (21%) describe their market as “Growing” followed by “Balanced/Healthy” (17%). The prevailing sentiment is that the year will start out one way and (hopefully) end up another, better way.
Optimism aside, however, Power Brokers have also learned to expect the unexpected. Still mired in the vicious circle of inflation, high interest rates, lack of inventory and affordability struggles, most Power Brokers don’t see market conditions improving until at least one of the above factors changes for the better and triggers a ripple effect that restores a healthy housing landscape.
Interest rates continue to be the fulcrum of the issue. According to Jody Kautz Hart, broker/owner of RE/MAX Associates of Arlington, rates at press time were still restricting buying power. “Buyers don’t feel financially secure with our economy so they are hesitant to commit to higher rates,” she reports. “Low inventory continues to be a factor as well.”
“Higher interest rates in 2023 left the market stagnant for some time,” says Anna Reiswig, CFO of Keller Williams Heritage/Memorial/Coastal Bend. “Fewer sellers put their home on the market due to higher interest rates than what they currently have. Buyers had reluctance and were having to look in a lower price range for affordability. There is some movement in 2024 with rates coming down slightly. It will remain challenging for the first part of the year.”
Optimism for the year ahead is based largely on the anticipation of interest rates improving throughout the year and the hopes of increasing inventory. While inventory dearth once again takes the lead spot as the biggest challenge to business this year—chosen by 54% of Power Brokers—signs of hope can be seen in the 14% who flagged new construction as the biggest opportunity for growth this year—in the past two years, new construction was much lower on the totem pole, at only x% and x% respectively.
“The rising interest rates environment of 2023 had a significant, negative impact on buyer demand and on new listing activity,” reports David Howell, EVP of McEnearney Associates. “As rates come down in 2024, we anticipate an increase in the number of transactions relative to last year—yet we will continue to have insufficient inventory.”
“Obviously, 2023 was a challenging year and our industry suffered due to high interest rates and shortage of inventory,” reports Hadi Atri, broker/owner of RE/MAX Executive. “We had 1,000 less transactions because of affordability and high interest rates. First-time homebuyers were most affected. With lower interest rates and hopefully more inventory we anticipate a 7 to 10% increase in sales in 2024.”
Samson Properties CEO Donny Samson concurs. “The biggest problem in our market right now is a lack of inventory,” he explains. “The reason for that is our interest rates. Sellers like their house but they love their interest rate. They aren’t willing to sell their 2.75% to go buy with a 6.5% or 7% rate. As rates come down we will see an increase in sellers that want to move up or move out, finally putting those houses on the market. If we could somehow have a transfer mortgage program, it would fix everything. Thousands of homeowners would move up tomorrow if this program existed.”
The impact of the legal landscape
In a perfect storm of events, difficult market conditions in 2023 and into 2024 have been compounded by the widespread upheaval sparked by the Burnett v. NAR verdict last October, and the slew of copycat or adjacent lawsuits that followed. The recent filing from the Department of Justice (DOJ) calling for decouple commissions has further exacerbated confusion and concern among real estate professionals and their consumers.
“Given the DOJ directive regarding buyer’s agent commissions, that will be, best case, disruptive and take our focus off of running a service-oriented business day-to-day and shift it toward risk mitigation and compliance, a situation in which no real benefit is achieved for anyone involved,” reports Dave Sansom, CFO of Carolina One Real Estate.
No matter how the legal issues potentially change how real estate is bought and sold, the immediate action step, Power Brokers agree, is educating agents…and consumers. As Robert Bailey of Bailey Properties in northern California says, “If there is a decoupling of the commissions on the listing and selling side of the transaction it will create tremendous pressure on brokerages and agents to elevate their service to buyers and their value proposition.”
And therein lies the opportunity, according to many Power Brokers.
“It’s essential to recognize that challenges also bring opportunities for growth and success,” says Kimberly Clifton, owner of Arizona’s Tierra Antigua Realty. “At this juncture, there is a pressing need to focus on educating and enhancing the value of REALTORSⓇ in 2024.”
Savvy Power Brokers have already embraced the need for increased education, especially when it comes to buyer agency.
“REALTORSⓇ in Tennessee have been using the Buyer’s Agency Agreement for years, which explains the REALTORSⓇ’ duties as a Buyer’s Agent,” says Laurence Kenner Relocation Director for Marx-Bensdorf, REALTORSⓇ in Tennessee. “Our office has had several meetings discussing the importance of going over the agreement with the buyer when we first meet so there is a clear understanding of our duties, and who we represent in the buying process. It also has a place to explain who pays the commission. I feel these changes will be positive by making REALTORSⓇ more transparent to the buying and selling public. will have a better understanding of our many duties.”
Broker James Kellander with Keller Williams Integrity First Realty in Arizona agrees. “With the impact of lawsuits on the industry we are focused on helping clients understand how income is earned by real estate agents, and the use of buyer broker agreements, which should be very positive for clients and potential clients.”
“Buyer-agent compensation changes may cause more buyers to go through the home-purchase process without representation which can result in a lot of problems both for buyers and brokerages,” adds Claudia Stallings, COO of Wallace Real Estate in Tennessee. “Agents who understand and can explain the pros of choosing representation to both buyers and sellers will succeed, and those who can’t, may struggle. It’s conceivable that lenders may develop programs to allow buyer-agent compensation to be included in the loan to facilitate closings.”
Educational efforts among Power Brokers are extending beyond buyer agency, however, as many are also taking a leadership role in changing a negative media narrative.
“The most significant impact of the events of 2023 in our market has and continues to be false or inflated news headlines,” explains Gavin Payne, broker/owner of Better Homes and Gardens Haven Properties on California’s Central Coast. “National media outlets love to over-inflate or, in some cases, falsely report the impact of the events, which in turn, causes confusion among consumers. As a company we have focused very heavily on ‘leading the conversation’ with our agents’ SOI and on social media to clearly articulate the state and impact of each event.”
A market still rife with opportunity
Despite the economic and legal challenges that will continue to play out this year, Power Brokers report that significant opportunity also exists as interest rates subside and release the floodgates of pent-up demand in 2024.
“The economic and industry landscape of 2023 exerted significant pressures that are likely to influence performance in 2024,” says Dan Kruse, CEO of CENTURY 21 Affiliated with locations throughout the Midwest, as well as in Florida and California. “As interest rates improve in 2024, I anticipate increasing unit sales, driven by substantial pent-up demand. My primary concern is not a decrease in value, but rather the need to increase available inventory to meet buyer demand, which is expected to surge as lower interest rates heighten interest in the market.”
Nimesh Patel, broker/owner of RE/MAX Fine Properties in Texas, has an even more positive outlook for business in 2024. “For consumers, 2024 is a much welcome sight with interest rates stabilizing and even coming down a bit,” he reports. “The new normal has them confident in starting their searches again this year. Sellers will be greatly impacted as the consumer confidence will bring a plethora of buyers back to the market causing a slight rise in prices. I look forward to the activity that will be happening starting this spring.”
John Meesseman, CEO of Berkshire Hathaway HomeServices Kee Realty in Southeast Michigan reports that housing inventory significantly declined last year, as rate-locked sellers held off on listing their homes. However, he adds, “the market is characterized by a substantial backlog of demand, with numerous buyers actively seeking properties but facing a shortage of available listings. We firmly believe a reduction in interest rates by 1.5 percentage points could significantly increase the available inventory, as more homeowners might be encouraged to sell.”
According to Michael Jones, broker/owner of RE/MAX at the Crossing in Indianapolis, capitalizing on the opportunities in this year’s market will require focus and expertise. “Inventory, as well as affordability, stand in the way,” he comments, “but are able to be overcome with proper knowledge, strategy and communication.”
“I think 2024 will be a challenging year, but a better year than 2023 when it comes to total transactions because interest rates will continue to decline,” says Corey Hasting, broker/owner of Florida’s Engel & Volkers First Coast. “The full-time agents who work hard for their customers will continue to climb while the part timers will fade.”
All eyes on the future
Despite the uncertainty that is likely to persist on many fronts throughout the year, Power Brokers are using 2024 to prepare for what stands to be a breakthrough year in 2025.
“I feel we will be steady to strong for the remainder of 2024 with a 2025 that exceeds all expectations,” says Scott Durkin, CEO of New York City-based Douglas Elliman..
While the continued transition of the market and the industry will continue to cause pain, most Power Brokers believe that pain will lead to gain. Ed Rae, president of RE/MAX Select Realty in Pennsylvania, points to three potential positive effects.
“The forecasted 2024 interest rate decrease will add more qualified buyers to the pool while also increasing buying power,” he explains. “The growing trend of additional inventory in the marketplace will alleviate some of the pricing pressure, and third, the legal scrutiny of the real estate industry has really cemented the importance of the role of the licensed, experienced real estate professional as part of the homebuying process. It is more important than ever to have the best trained and most experienced real estate agents who are held to the highest professional standards in your brokerage.”
All of this, one hopes, will ultimately benefit homebuyers and sellers. As Teresa Overcash, broker/owner of Realty ONE Group Results in North Carolina says, “The shifting market will help us create a more transparent buying and selling process, ensuring that agent and consumer education is prioritized.”
As Nicola Ubaldini, broker/owner of Florida’s Keller Williams Ubaldini Group says, “We see all changes as opportunities to improve our skills to better counsel our customers. Focusing back on truly helping the consumer and providing over-the-top customer service will provide all we need to go through any and all changes or challenges.”
To view the 2024 Power Broker Report, click here.
