Are U.S. Home-Sale Revenues Finally Bottoming Out? Intel Examines

Key Takeaways:

– The steepest part of the home-transaction downturn appears to be over
– Real estate companies may see a turnaround in the market soon
– Existing-home sales have stabilized and interest rates may decrease
– Intel’s analysis suggests a potential uptick in real estate commissions in 2024
– The estimated commission revenue pool from existing-home sales was down less than 3% year-over-year in December
– The gap between commission revenues has closed greatly since April when there was a 30% decline
– The real estate industry may achieve year-over-year revenue growth in the spring and summer
– Intel estimates the potential commission revenue pool for the existing-home market at $473 billion in the final three months of 2023
– The pool of existing-home sale commissions dropped by $18 billion from 2022 to 2023, compared to a $179 billion drop from the spring months of 2022 to the spring market of 2023
– NAR’s forecast predicts a 13% rise in existing-home sales in 2024
– Pending home sales saw an 8% seasonally adjusted jump from November to December, indicating a possible turnaround in the market

inman:

The steepest part of the home-transaction downturn appears to be over. Is this where business turns around? Intel dives into the data.

This report is available exclusively to subscribers of Inman Intel, the data and research arm of Inman, offering deep insights and market intelligence on the business of residential real estate and proptech. Subscribe today.

Real estate companies that might have been hoping for a sharp mid-year turnaround in 2023 were let down in a big way as the depressed market dragged on into a second winter.

They may not have to wait much longer.

The freefall in real estate transaction revenue appears to have been arrested in recent months as existing-home sales found their footing and Federal Reserve officials signaled they may soon be done holding interest rates high. 

This may pave a more realistic path to a long-awaited uptick in real estate commissions in 2024, an Intel analysis suggests.

To explore where the market stands — and establish a framework for where it may be headed — Intel analyzed a combination of home sales and prices from the National Association of Realtors to arrive at a rough estimate of the pool of available commissions in the U.S. home market.

  • The estimated commission revenue pool from existing-home sales was down less than 3 percent year-over-year in December, according to Intel’s analysis.
  • That gap had closed greatly since April when there was a 30 percent annual decline in estimated commission revenues.

If these trends continue, the real estate industry may have a realistic path to achieving year-over-year revenue growth in the spring and summer — a development that would mark the end of the downward spiral it has weathered for the last two years.

Read the full report below.

How much money is out there?

Reliable measures of total real estate commissions can be tough to find — especially for tracking on a month-to-month basis.

To get an idea of the bigger picture, Intel consulted sales and price data from NAR and other sources. Intel’s estimate was based on the raw number of existing-home sales and average sale price for each period, plus an assumption that commission is approximately 5.5 percent of each transaction. 

This exercise came with a clear takeaway: Potential revenues in the second half of 2023 looked much like they did during the same period the previous year. And that’s especially true for the closing three months of the year.

  • Intel estimates the potential commission revenue pool for the existing-home market at $473 billion in the final three months of 2023 — a “mere” $18 billion drop from the closing months of 2022.

Compare that $18 billion drop with the $179 billion freefall from the spring months of 2022 to the spring market of 2023. 

  • Real estate businesses potentially raked in an estimated $735 billion in the spring months of 2022, even as mortgage rates rose and observers pointed to signs that a once-red-hot market was beginning to cool.
  • Exactly one year later, the pool of existing-home sale commissions was only $557 billion.

A broader vantage point

Using Zillow’s tracking of median prices and the number of listings that went pending each month paints a similar picture, and an interesting historical picture emerges.

Chart by Daniel Houston

You can see in the chart above several key moments in the housing market’s strange post-pandemic reality: 

  • The downward jolt in potential revenues that occurred in the early weeks of the pandemic shutdowns in 2020
  • The upward spike the next year as 2021’s numbers are compared to that initial pandemic shock
  • The period of robust year-over-year revenue gains that petered out in the summer of 2022
  • And a protracted downturn in potential revenue beginning in the fall of 2022 and deepening throughout the first half of 2023 — which may now be bottoming out.

NAR’s own measure of pending home sales — a more forward-looking indicator than completed transactions — saw an 8 percent seasonally adjusted jump from November to December alone. 

  • This partly informs NAR’s forecast that 4.62 million existing homes will sell in 2024. 
  • This projection, if accurate, would represent a 13 percent rise in this class of real estate transaction. 

The eventual numbers may still defy predictions made in January. But judging from the market’s recent trajectory, at least, a turnaround of some kind may well be on the table.

Email Daniel Houston


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Property Chomp's Take:

The steep decline in the home transaction market over the past couple of years may finally be coming to an end. According to Intel's analysis, the freefall in real estate transaction revenue has been arrested in recent months as existing-home sales stabilize and the Federal Reserve signals a possible end to high-interest rates. This could pave the way for a much-anticipated increase in real estate commissions in 2024.

To gain insight into the current state of the market and predict its future trajectory, Intel analyzed data from the National Association of Realtors (NAR) on home sales and prices. Their analysis revealed that the estimated commission revenue pool from existing-home sales was down less than 3 percent year-over-year in December. This is a significant improvement from April when there was a 30 percent annual decline in estimated commission revenues.

If these trends continue, the real estate industry may finally see year-over-year revenue growth in the spring and summer, marking the end of the downward spiral it has experienced in recent years.

Determining the total real estate commissions can be challenging, especially on a month-to-month basis. However, Intel's analysis, based on existing-home sales and average sale prices, estimated a commission of approximately 5.5 percent for each transaction. This exercise revealed that potential revenues in the second half of 2023 were similar to the previous year. The potential commission revenue pool for the existing-home market in the final three months of 2023 was estimated at $473 billion, only $18 billion less than the closing months of 2022. This is a much smaller decrease compared to the $179 billion drop from the spring months of 2022 to the spring market of 2023.

Another indicator of the market's trajectory is Zillow's tracking of median prices and pending listings. This data shows a similar pattern, with a downward jolt in potential revenues at the start of the pandemic in 2020, followed by an upward spike in 2021. The market then experienced a period of robust revenue gains that tapered off in the summer of 2022. From the fall of 2022 to the first half of 2023, there was a protracted downturn in potential revenue, which may now be bottoming out.

NAR's measure of pending home sales, a forward-looking indicator, saw an 8 percent seasonally adjusted jump from November to December. Based on this data, NAR forecasts that 4.62 million existing homes will sell in 2024, representing a 13 percent rise in real estate transactions.

While these projections may still change, the recent trajectory of the market suggests that a turnaround is possible. Real estate companies may finally see an increase in revenue and a return to growth after two challenging years.

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