As 2023 draws to a close, the residential real estate industry is facing challenges like never before. Elevated mortgage rates, low inventory and stubbornly high home prices in many places within the U.S. are, ironically, lower on the list in some regards, as experienced REALTORS® have often had to work through those issues in down cycles over time.
Now, two more imposing business-related developments have become evident. One, of course, is the recently concluded Burnett vs. NAR class action lawsuit in which the defendants were found to have conspired to inflate commissions in violation of federal law, with an award of $1.78 billion to the plaintiffs. Buyer-agent commissions may very well be affected dramatically in the near future as the legal actions and rulings play out.
HomeSmart CEO and Founder Matt Widdows explains what he sees as the other major factor negatively impacting REALTORS® and homebuyers.
“The largest concern I have right now is real estate continuing to turn into a commodity,” he says. “Institutional investors continue to invest in the residential market in volume and control a large percentage of residential units. This, in turn, makes it more difficult for the average consumer to afford homeownership, thereby driving the rental market and playing into the institutional investor’s hand. I think homeownership is becoming a luxury that many can’t afford, especially compared to pre-2008 before the crash.”
Indeed, according to the PEW Trust with data originally gathered by CoreLogic, as of 2022, investment companies own about a quarter of all single-family homes. Last year, investor purchases accounted for 22% of American homes sold.
It’s logical because investment companies have a big edge on consumers when it comes to interest rates. They can borrow far more money, at much better terms, than can a single homebuyer. If the buyer pays around 6% for a mortgage, the institutional investor can purchase the same home for at least a percentage point less, or more.
Widdows also notes that this has been a hard year for sales regardless, and he thinks 2024 may very well be more of the same.
“2023 has been a challenging year,” he says. “Rates have continued to increase, inventory continues to be an issue and buyer activity is waning as rates continue to keep them on the sidelines. On the other hand, we have an unusual phenomenon occurring in that prices are still fairly stable given the limited inventory somewhat matching buyer demand.
“I think I’ve changed my outlook multiple times this year. It’s just so hard to predict when you have an economy that has been artificially propped up with many policy changes over the last few years. I see much the same for 2024 until we start to see an easing of rates, and as of today, I don’t see it in the near future.”