US: Real Estate Agents compete fiercely due to Lack of Housing Supply

The US real estate market has faced numerous challenges in the past year, with brokers struggling to make ends meet due to a drop in housing transactions.

The US real estate market has faced numerous challenges in the past year, with brokers struggling to make ends meet due to a drop in housing transactions. The pandemic craze may be over, but the slowing sales have forced many real estate agents to question whether the profits are worth the thousands of dollars and countless hours spent.

One of the most significant challenges facing new agents is the fierce competition with veteran partners. The barriers to entry in the real estate industry may be low, but the barriers to success are high. As the housing market goes through booms and busts, so does the team of real estate agents. During the 2008 period when the US housing market crashed, membership in the National Association of Realtors (NAR) had plummeted to 964,000 from a peak of around 1.4 million in 2006.

US: Real Estate Agents compete fiercely due to Lack of Housing Supply

The pandemic boom saw an increase in brokerage numbers, but the ensuing market decline resulted in a drop of around 74,000 members within five months of last October's peak. It is too early to tell whether this is a seasonal drop, which happens every winter, or a sign of a prolonged decline. However, it is clear that these "tougher times" for dealers could drag down the entire industry's headcount as more people leave the game.

Even before mortgage rates started rising last year, the market frenzy presented its challenges to agents. A decade-long decline in construction activity in the United States has left first-time homebuyers scrambling for meager homes, competing with investors and older, wealthier buyers. This makes it more difficult for agents to help customers own their dream home.

Despite the challenges, it is still a boom time for dealers. In 2021, a U.S. dealer typically hits 12 deals, up from 10 in 2020, and their average sales jump to $2.6 million, up about 24% year-over-year. However, that all started to change in the late spring of 2022, when the US Federal Reserve (FED) started raising interest rates to reduce inflation. This leads to higher mortgage rates, worrying economic forecasts, and a lack of housing supply, which freaked out both buyers and sellers.

The gloomy market mood is due to a combination of factors. Interest rates on 30-year mortgages have risen above 6%, more than double the average for the same period in 2021. For an average home priced at $470,000, that disparity can be significant. That means your mortgage payment will increase by about $1,000 each month.

Even if buyers have enough money in the bank to pay the higher interest rates, the market won't have enough homes to sell. Despite an increase in recent months, the total supply of homes for sale in the US in March was still 43.2% below the 2017-19 average. The hesitancy of both buyers and sellers contributes to a familiar spiral in which homeowners worry they won't be able to find another home to move into, or are reluctant to forego lower mortgage rates previously enjoyed.

This has caused real estate agents to compete fiercely for supply and customers. With around 1.5 million agents and only 563,000 homes for sale, even if there are many potential customers, brokers in the US also have to fight to have houses to sell.

The US real estate market is currently facing numerous challenges, with brokers struggling to make ends meet due to a drop in housing transactions, rising mortgage rates, and a lack of housing supply. While the market may still be a boom time for dealers, the industry's headcount may decline as more people leave the game. Real estate agents will need to compete fiercely for supply and customers, and the barriers to success will remain high.