By now, it’s understood that the market headwinds that manifested in the second half of 2022 dealt a blow to the industry. From surging mortgage rates peaking in June to economic volatility brought on by elevated inflation and the Federal Reserve’s response, companies did their best to navigate the turbulent times, with many posting lower earnings and higher losses.
Douglas Elliman joined the fold after falling short of estimates for the final three months of 2022.
In its latest earnings report, the New York-based firm reeled in $207.3 million, down from the $334.2 million it earned in the same period the previous year. Despite the decline, the company also cut some of its losses in the fourth quarter of 2021.
Douglas Elliman tallied an $18.4 million net loss in Q4, down from the $20.2 million it lost in the same period in 2021.
Looking at its performance for the entire year, Douglas Elliman reported lower earnings and higher losses than in 2021. The firm earned $1.15 billion for the year, dropping roughly $200 million from the previous year.
The company also finished the year in the red instead of the black, posting $5.6 million in net losses, a sizable shift from 2021, when it ended with nearly $100 million in profits.
Douglas Elliman started trading as a standalone company at the end of 2021 after spinning off from parent company Vector, which some investors were reluctant to invest in because of its tobacco holdings.
In a Friday call with investors, Douglas Elliman Chairman, President and CEO Howard Lorber indicated that shifts in the market from its “generational peak in 2021” dealt a blow to the company’s transaction volume last year.
While he painted the picture with a brush of optimism, Lorber stated that the brokerage saw as much as an 18% and 16% decline in its transaction volume and gross transaction volume, respectively.
“These declines were driven by significant increases in mortgage interest rates, volatility in financial markets and listing inventory shortages in the luxury market in which we are active,” he said.
The supply shortage isn’t likely to ease in the near or medium term, as many homeowners locked in mortgages when rates were extremely low.
Lorber also indicated that the limited inventory in luxury markets would likely keep prices stable.
“Looking ahead, we continue to believe that tight supply will gradually ease as time passes and consumers adjust to higher interest rates and sellers adjust price expectations accordingly,” he said. “Importantly, in residential real estate, luxury markets are usually the last markets to enter a down cycle and the first markets to emerge when the cycle ends.”
Like other companies in the industry—including fellow New York-based brokerage Compass—Douglas Elliman has implemented some belt-tightening during the more challenging times.
Lorber noted during the call that the brokerage has frozen hiring in 2023, which has led to a dip in agent headcount through what he described as “normal attrition.” He signaled that the company is also weighing potentially reducing sponsorships, streamlining its advertisements and consolidating its office space—admittedly something that could minimize rent expenses this year and next year.
“We believe that these changes will result in a nimbler Douglas Elliman,” Lorber said.
Lorber said the company will focus on “strategic market expansion, continued recruitment of talent and further adoption of innovative solutions to empower our agents.”