The housing market as of late has become a tumultuous landscape to navigate, with mortgage rates above 7%, home prices having grown 357% in the last decade and homebuying sentiment recently at an 11-year low. Homebuying has become an unreachable dream for many, putting a lot of pressure on companies across the industry to find ways to stay profitable.
Despite recent market setbacks, Anywhere Real Estate still reported “meaningful profitability” in the third quarter, according to company executives.
Anywhere’s latest earning report measured the company at $1.8 billion, a hefty revenue for Q3, but still a 17% year-over-year decrease. Net income for the company came in at $55 million on the report, a decrease of $59 million from last year, and basic earnings per share of $0.49.
Additionally, the company reported that cash on hand was at $272 million, while free cash flow was at $99 million. Further, Anywhere Real Estate ended Q3 with a senior secured leverage ratio of 0.02 times and a net debt leverage ratio of 3.8 times.
“The biggest challenge today is the rapid deterioration of the housing market. Our Q3 transaction volume was down 17%, consistent with our down 10% to 20% estimate, but the market is unfortunately worsening beyond that,” said Anywhere CEO and President Ryan Schneider. “Based off what we’re seeing in the market today, including our September and October open contracts, we’re seeing more like over 25% volume reductions driven by lower unit sales, and recent third-party forecasts predict lower 2023 volume driven by a decline in unit sales versus their 2022 forecasts.”
With the new 25% reduction estimate, the company stated that it has reevaluated its Operating EBITDA estimates for 2022. Currently, Anywhere’s Operating EBITDA is $166 million (a decrease of $107 million year-over-year), which Schneider stated that there was originally more to this number that was lost to legal accruals in the quarter.
“There are a large number of industry class action lawsuits as well as additional litigation facing the company; two have trial dates set in the next six months,” said Schneider. “All these cases are complex and constantly evolving. And while we’re vigorously defending these lawsuits and believe we have substantial defenses, we increased our legal accruals for several matters in Q3.”
While their original estimation of Operating EBITDA for 2022 had been in the range of $600 to $700 million, in the current state of the housing market, the company stated that they predict that they will not reach the original estimation, and will not provide a revised estimate “in light of the current high degree of macroeconomic volatility, in particular with respect to factors impacting the residential real estate industry.”
Additionally, Anywhere shared that their agent base was up 7% year-over-year and that commission split increases were up 215 basis points year-over-year, but down 15 basis points from Q2.
Schneider emphasized that a big point in the company has been to push cost reduction to help business survive, and thrive, during the current state of the market.
“As we’ve seen the housing market worsen, we increased our cost reduction even more during Q3 as Charlotte will discuss later on the call. Now, looking forward, as we head into a worsening housing market, we continue to be proactive in preparing for that environment,” said Schneider. “Not only have we focused on cost reduction every year for the past four years, but in both Q2 and here again in Q3, we increased our cost reduction for this year as we saw the market deteriorating.”
Chief Financial Officer Charlotte Simonelli shared that Anywhere’s push to integrate their brokerage and title operations is a great example of the changes they are making to up their speed, efficiency and delivery on investor promises.
“These businesses represent about 70% of our cost base and the lion’s share of our customer interactions across the business. And we are excited by this opportunity,” said Simonelli. “As we integrate these businesses, we plan to report the brokerage and title financial segments combined together in our full year 2022 results and going forward.”
Schneider concluded, “I’m proud that we were able to achieve solid financial results in the quarter. Going forward, our most important focus is on the challenging environment ahead, executing cost savings, making prudent growth investments and capitalizing on the better competitive dynamics to set us up for even stronger outcomes and greater competitive differentiation as the market improves.”
