Same Stuff Different Day

Welcome to the new year-- although to many it’s best described by the acronym “SSDD.” Based on conversations with brokers, it does feel like the movie “Groundhog Day” in which the main character, Bill Murray, finds himself reliving the same day over and over. The real estate industry seems like it’s reliving past days; the last couple years have been a wild ride and it’s going to carry well into 2022.

 

Home sales reached the highest level in 15 years, with an estimated 6 million homes sold in 2021. Homeowners saw average home prices skyrocket nearly 20% which was the largest annual home price increase in the history of the House Price Index. In many hot markets especially in the southeast, the price increase was more than double that.

However, for buyers, it was a different story. Although mortgage rates remained at record lows, it was difficult to even find a home to buy. Inventory of available homes reached an all-time low early in the year and competition was extremely stiff especially for first time buyers who were competing with investors and institutional buyers. 

The overriding news was that inflation shot up at the fastest pace since 1982. Most experts say housing demand will stay strong in 2022 unless inflation continues to outpace wages at the same pace of 2021, which could cool buyer activity.

Everyone’s making their predictions, so I’ll jump in with mine as well:

• 2022 will continue to be a growth year although there will be some cooling, mostly due to inventory shortages 
• Prices will increase 10% with fewer bidding wars
• Average mortgage interest rates will rise above 4%
• The buyer-to-seller ratio imbalance will continue throughout the year
• New home construction will continue to lag due to the rising cost of and lack of building materials as well as labor shortages
• Affordability looms as a major challenge for many as inflation, prices, and increasing interest rates will impact many buyers 
• The pandemic is the ongoing unknown. The fast-moving omicron variant is becoming the economy’s wild card
• It will be interesting to see the effect of stock market fluctuations and the mid-term elections

What will remain the same is how brokers react to the changing market. Some will stay the course; others will look for opportunities to be more competitive and scale their growth. A certain percentage will be ready for personal changes and a path that enables brokers to take their chips off the table by selling or merging in today’s hot M&A market so that they may focus on other aspects of the business or just slow down. 

Some examples of successful brokers taking advantage of market opportunities include:

Sharon, the owner of a 100+ agent firm in a high-demand Florida resort market was feeling the pressure all around her. “We were always the top boutique luxury brokerage in the market but in recent years, I found we were getting squeezed and losing deals to other newer and larger companies. It was getting increasingly hard to compete and as the years went by, I found my company was making a lot less money. It was frustrating.”  

She eventually sold her company keeping a hand-picked group of agents who now make up the premier team operating within the acquiring company. “Although we all stayed with the new company and use their incredible branding, we market our team using the name of my original brokerage. Now we have tools, resources, marketing and referrals that we didn’t have as much of before. I am able to spend my time focusing on the parts of the business I enjoy and it’s much more financially rewarding for me.”

Aaron was a broker/owner who had a light bulb moment following a company happy hour. “I spent the entire time on the phone working through issues with a couple of my agents while everyone else enjoyed the social time.” Later that evening, I was curious and looked at how much money I had made for those agents and compared the earnings of my top agents. That’s when I decided I needed to do something different-- I should be an agent. I knew I would make a lot more money and have a better work-life balance without getting all the phone calls from agents that always start with the phrase-- I know you’re busy, but...”

He merged with a larger brokerage that had a similar culture. Aaron negotiated a financial package in which part of the purchase price included ongoing commissions for several years based on the firm’s company dollar. The arrangement has worked well.  He manages his own deals at his pace and has few interruptions. He has remained the top agent with the company and has become very protective of his family time to the point that he almost never works weekends, something he could never have done as the owner of the firm. 

While there are a number of paths for brokers wanting to explore financial and lifestyle options, each broker’s needs are different. It takes expertise to find the solution that makes the most sense for a broker/owner’s long-term gain.  

It reminds me of the great quote from American motivational writer, William Arthur Ward, who said “the pessimist complains about the wind; the optimist expects it to change; the realist adjusts the sails.”  

Happy New Year and hang on for the ride!

If you would like to learn more and explore what a valuation looks like for your company, click here to contact Rick Ellis today.