Economists have been waging an intellectual war in the past two years trying to determine when the U.S. economy would head into a full-fledged recession. And while most of those predictions have been premature or based on false readings of the economy, one industry leader claims his business sector is already there.
At his recent Keller Williams Family Reunion last month, company co-founder Gary Keller told his nearly 180,000 agents that the Federal Reserve’s inflation policy will continue to haunt the real estate industry in 2024, but there’s still plenty of opportunity for agents to succeed.
Despite that encouragement for his real estate agents fighting for the few listings available in an inventory-depleted landscape, he admitted to the gathering that the “R” word has landed.
“The Fed wants us to come right up on the border of a recession—an economic recession. Right now, real estate is in a recession—you are in a recession,” Mr. Keller said.
“But the economy’s not in a recession. So, as long as they can keep us in a recession and keep the economy out of a recession, they’re going to keep rates high. Now, when we say we’re in a recession, what I want to point out is that we’ve already receded.”
Agents Are Leaving
One of the more significant questions concerning the financial shape of the industry is how companies like Keller Williams will be able to keep their agents. With interest rates still high, little inventory on the market, and a lawsuit that will change the commission structure for the foreseeable future, the National Association of Realtors (NAR) reports more than 60,000 agents have left since the beginning of 2023.“Recession is a big scary word to most, but I think it’s safe to say that the real estate market overall is probably in a recession. And there are so many different factors involved that influence that—jobs, the economy, inventory, and interest rates. They all seemed to have aligned at the same time,” said Craig Brown who leads the Craig Brown Group for Fathom Realty in Maryland and Virginia.
But Mr. Brown points to a moment in the industry a couple of years ago when homes were selling in hours instead of months as the impetus that landed a lot of inexperienced agents in the market.
“What happened was a frenzy of home sales taking off before the downturn and everyone jumped in. The roster of agents skyrocketed and as someone who has been doing this for two decades, it was a sad take on the lack of professionalism in the industry due to all the part-timers coming in. If you were a client, you couldn’t even reach them because they were at their other job,” he said to The Epoch Times.
Still No Inventory
With home mortgage interest rates still climbing and now again over 7 percent, coupled with still rising prices, the residential real estate industry is showing few signs of recovery in 2024. Freddie Mac chief economist Sam Khater said in a press statement that a mixed bag will be offered to buyers this spring.“Despite persistent inventory challenges, we anticipate a busier spring home-buying season than 2023, but admitted home prices will continue to climb “at a steady pace.”
Inventory also continues to be a massive barrier to a healthy real estate sales market, with many homeowners foregoing selling their homes purchased with 2 percent or 3 percent mortgage rates to jump back into a market over 7 percent. However, according to a report from Realtor.com researcher Hannah Jones, another issue is that many homes started in the past 10-plus years were never finished.
Ms. Jones writes that between 2012 and 2023, more than 17 million new households were formed. Still, only 9.5 million single-family homes were completed during that same period, contributing to a gap of more than 7 million homes.
Investors Are Finding Capital
Marco Santarelli, an investor, author, podcast host and founder of Norada Real Estate Investments near Laguna Beach, California, doesn’t believe the residential real estate industry is in a recession. He says the investor side of the sector, which he’s been active in for 20 years, is doing fine as long as they continue to pay attention to what’s important.“I’m bullish because of the fundamentals, but the amount of supply we are creating is not enough to keep up with the demand for new housing units. We are still falling short every year with the amount of new houses we need to produce,” he said to The Epoch Times. “We focus on 25 markets to sell investment properties to investors. It comes down to a few things for us: one is job growth, two is population growth, and three, the numbers need to make sense.”
However, regarding the current malaise affecting sales in the residential real estate market, Mr. Santarelli put the blame at the feet of the U.S. Federal Reserve, though he believes some will still achieve their investment goals if they have the right creditworthiness. “The Fed held rates too low for too long and created a bubble and then another. We have no issue getting finance if our customers have good credit. There’s no shortage of money, but the number of people who qualify for that money has shrunk,” he said.
But no matter how much money a buyer or investor has and no matter how good their credit score is, many can’t find a home because there just aren’t enough available.
“I have an upper-end million-dollar buyer that we can’t find anything for. He’s looking for a condo with all the amenities. There’s no inventory. And if you’re a first-time buyer, you’re out,” Mr. Brown said.
