After a tumultuous period that saw real estate markets begin pulling back from historic heights almost exactly a year ago, brokers appear to be in “wait and see” mode ahead of an uncertain spring season, with RISMedia’s Broker Confidence Index (BCI) holding essentially steady in February.
Slipping only one-tenth of a point from 6.5 to 6.4, real estate business leaders across the country are absorbing a month of mixed data and uncertain projections about a possible recession, focused on pitfalls in the medium term as they prepare with cautious hope for a potentially crucial couple months ahead.
“We will see an actual increase in the number of transactions coming up in March due to seasonality,” promised Lennox Scott, chairman and CEO of John L. Scott Real Estate, “but still below what we consider a normal market. Homes are selling! High intensity for those that make it to the market.”
Brokers reacted ecstatically in January to a slew of positive inflation data and a rebound in buyer demand and consumer confidence as the Federal Reserve foreshadowed an easing of restrictive rate hikes, with the BCI shooting up a full point from December, its largest single-month increase ever.
Since then, however, mortgage rates crept back up, and economists have begun questioning whether inflation is truly under control following a higher than expected reading from the Consumer Price Index and more labor market tightness, blunting optimism that a swift economic recovery is imminent.
“Sales are off 25% in all nine markets we operate in,” said Harold Crye, broker/owner of Crye-Leike Real Estate in Tennessee. “Economists keep saying we will have a recession this year.”
But as markets thaw and buyers and sellers absorb the realities of housing in 2023, the overall sentiment from BCI respondents remained much more hopeful than in the second half of 2022, with some indication that early momentum this year could carry into Q2 and beyond.
“Pending sales are at the highest they’ve been in months, and new mortgage applications have been strong for four weeks solid,” noted Casey Bryan, president of Berkshire Hathaway HomeServices Florida Properties Group.
It was late January of last year that Fed Chair Jerome Powell made it clear that he was planning on raising rates, with mortgage markets reacting even before that decision was implemented in March. Along with an energy crisis caused in part by Russia’s unprovoked invasion of Ukraine, this quickly brought down home sales and depressed overall real estate activity.
Now, though, there is hope that rates may have peaked last November, and at least some brokers are anticipating a return to normalcy without a painful “hard landing” for the economy.
“I believe the real estate industry will bounce back quickly as confidence builds with buyers understanding that interest rates are still good if you look at the overall history of rates,” said Kenneth Zarella, team leader for Keller Williams Metropolitan in Texas.
One major issue that is unlikely to be rectified quickly is inventory, and brokers made it clear this month that they were acutely aware of how a lack of homes for sale—either existing or new builds—would depress any market comeback. A staggering 45% of respondents cited inventory as the main obstacle, or one of the main obstacles, affecting their confidence this month, compared to 32% who mentioned rates.
“Demand is hampered by affordability issues caused by rising prices and mortgage rates,” said Michael Scarafile, president of Carolina One Real Estate in South Carolina
As inventory has remained a concern throughout the pandemic—with many experts saying the current crisis actually originated as far back as 2008—this month, we asked brokers about the biggest factor preventing new inventory in their markets.
An overwhelming 85% of respondents said the main obstacle to new inventory was existing homeowners who were either unwilling or hesitant to put their homes on the market. This is a marked difference from the pandemic, when sellers were eager to cash in on soaring home prices, and provides further evidence of the “golden handcuffs” phenomenon—the prediction that homeowners who locked in low mortgage rates will stay put.
Mark Kavanagh, team leader for Keller Williams Gateway in New Hampshire, said that many factors are at play, with existing homeowners only one part of the problem.
“It’s a combination—easily buildable land is already developed,” he said. “Builders would build, however, regulations/zoning remains prohibitive, and with few places to move, existing homeowners bottleneck the entire process.”
Chuck Poteet, CEO, founder and broker of PRG REALTORS® in Texas, pointed to the imbalance caused by the recent volatility in rates as preventing existing homeowners from selling.
“High rates deflated home prices, causing sellers to lose 20% equity,” he noted. “Unfortunately, now they can’t afford to sell and buy with less equity at higher rates.”
A handful of other brokers delved further into the problem, with Scarafile citing poor infrastructure as hampering new development, and Paul Ekstrom, broker/owner of Realty ONE Group Choice in Minnesota, saying that land and construction costs are simply too high right now.
Regardless of the issue, brokers seemed more attuned than ever to the mentality of consumers and the kind of information that is propagated around housing. In January, many brokers said that a return of demand had more to do with buyers accepting higher rates and negative housing headlines fading, rather than any actual concrete change—something outside experts predicted would happen following the historically fast increases in mortgage rates.
“There’s business out there. Real estate professionals just need to know that this is a ‘job’ and work!” urged Linda Wepner, broker/owner of CENTURY 21 Bell Real Estate in Wyoming. “We have continual negativity from 24/7 news. 6.5% interest rates are not high!”