Move, the parent company of Realtor.com, recently published some great news for real estate. The number of US Homes for Sale is Returning to Normal. “The biggest eye-catcher for me is the fact that inventory is rising sharply,” says Realtor.com senior economist Ralph McLaughlin. “There are 35.2% more homes on the market than this time last year, an incredible trend in the direction of normality.”
Think of it this way: the run rate for home sales hit a peak of about 6 million before falling to a lull of about 4 million. A huge drive of the real estate economy is units. The biggest spend in the real estate economy is on advertising. More listings also means more advertising, more page views, more time on site, and more transaction fees!
Real estate brokers, agents, and technology companies have been sucked dry by the reduction in units. The only glimmer of light is the rapid raise of home values. Since real estate income is largely based upon commission, higher property values offset some of the lost income. But generally, many companies have faced a headwind of about 20% revenue loss during the low inventory and low transaction volume market of the past two years.
Consumers stand to benefit from this trend as well. With a greater selection available, homebuyers have increased opportunities to find their ideal home, rather than settling for something merely adequate. Moreover, sellers are more inclined to negotiate concessions to attract buyers, such as covering home repairs, reducing mortgage points, covering closing costs, and potentially even covering the buyer’s agent commission. These developments signal a positive shift in the real estate market, offering advantages for both industry professionals and homebuyers alike.
Technology firms are bound to recover, too. I know that most companies who are selling to brokerages have had a difficult time over the past few years as budgets have been cut – and generally no new spending has been approved. The same has held true for mortgage. This has had a dampening impact on venture capital as well; very few deals have closed.
The brightest light may shine on brokerage M&A. I know of a number of companies that stopped all M&A activity. Those who stayed engaged were creating some pretty clever earn-out terms. The market improvement will be a windfall for sellers who have earn-out bonuses that were calculated on volume over the past few years. The first half of the year was not great, but there’s hope that the second half should finish out very strong.
