The first quarter of 2022 has been anything but predictable. This is true for business and society at large. The year is still young, but it has already seen geopolitical turmoil, rollercoaster economics, entertainment follies and busted brackets. And that was just March. But, real estate, too, has certainly had its share of ups and downs over the past three months.
Coming off a historic 2021 for residential real estate, brokers entered this year with resolute confidence about the road ahead, according to RISMedia’s first Broker Confidence Index (BCI) report in December. The more than 3,000 brokers we surveyed revealed an index score of 8.2 out of a possible 10, suggesting an extremely positive outlook for the market. However, since then, there have been some unexpected events that have somewhat eroded that confidence.
In March, the BCI was 7.5 for the second straight month, which is down 70 basis points since the close of 2021. There’s not a great deal of analysis necessary to understand why this slight but steady decline has taken place.
John O’Reilly, broker/owner of Better Homes and Gardens Real Estate Base Camp in Richmond Virginia, succinctly sums it up. “I feel there is a silent undertone of trepidation. Inflation and war have people nervous.”
Further, inventory levels have yet to meet buyer demand. Mortgage rates are continuing to tick up and we finally saw them exceed the 4% mark that economists warned us was coming back in Q4 2021. Inflation has continued to balloon to levels not seen in 40 years and is on the precipice of 8%, year-over-year.
Much of this has been driven by staggering increases in the price of crude oil, which literally and figuratively fuels the global economy. And yes, to O’Reilly’s point, Russia’s invasion of Ukraine has shaken the global markets, causing a macroeconomic ripple effect. With all these factors combined, it’s easy to understand why brokers could be getting a bit queasy about the forward-looking state of residential real estate. Still, the index does point to a stable, thriving market, but with perhaps more headwinds than expected entering the year.
Slipping Sales
A laundry list of uncertainty is a valid reason for confidence to decline, it’s the numbers themselves that paint a clearer picture. More than half of our broker respondents (58%) said transactions were down versus the previous quarter, while only 17% saw that number increase.
Likewise, nearly half (46%) said sales volume has also fallen quarter-over-quarter. With almost an even split of those who said volume was down (28%) versus those who said it was roughly the same (26%). Sliding sales volumes and fewer transactions were largely driven by inventory constraints, according to 40% of respondents.
Warmish Spring
While the spring market is typically when things heat up for residential real estate professionals, plenty of respondents aren’t expecting that to be the case this year. More than one third of brokers (39%) are expecting transactions to continue to decline. That said, nearly one-third (32%) disagree and expect an increase. Again, inventory struggles seem to be the catalyst for decreased transactions. Without enough homes to sell, it will be hard to outperform previous quarters.
“The inventory shortage is beginning to get scary. No one is moving unless they are relocating out of state,” said Chad Ochsner, broker/owner at RE/MAX Alliance in Arvada, Colorado.
There could be greater forces at work too, as one broker warned. “I believe we are already in the midst of a slight correction. Units will be down and volume flat,” said a respondent who asked to remain anonymous.
Nevertheless, rising inflation rates, low inventory and high demand will most likely lead to higher price points, which is partially why close to three-quarters of respondents expect sales volume to increase (35%) or remain about the same (35%).
“Prices are going to rise and buyers are still going to find it tough to compete. Bidding wars will still be prominent if not a bit more than last Spring,” said Dawn Daly, director of operations at House of Brokers Realty in Columbia, Missouri.
We concluded the survey by asking brokers if they thought the Fed raising interest rates would impact their respective markets. More than half (58%) indicated that it would, while an even split of respondents said no or were unsure.
Three RE/MAX broker/owners from uniquely different U.S. markets had their own take on the interest rates.
Dennis Terrel, broker/owner of RE/MAX Dynamic Agents in Mankato, Minnesota expressed his concerns. “Interest rates will stop a lot of people from buying.”
Kimberly Minor, broker/owner at RE/MAX Real Estate Results in Bentonville, Arkansas, foretold the opposite. “It will be the busiest quarter of 2022 due to rising interest fears.”
Jack Fry, broker/owner at RE/MAX of Reading in Wyomissing, Pennsylvania, was more assertive. “The small interest increase will have little to no effect on our market. At best it would slow down the speed of the price increases, but not slow down the rate of sales.”
Though the Spring market’s outcome is yet to be determined, the overall sentiment from brokers is still mostly bullish with an expectation of sturdiness, but the possibility of some correction, particularly regarding the concerning inventory shortage.
“I feel the market is at the tipping point we have been expecting where inventory will start to go up due to buyers being priced out of the market,” concluded Adam Wilson, broker at CENTURY 21 Wildwood Properties in Twain Harte, California.
Caysey Welton is RISMedia’s content director. Email him with your real estate news ideas, cwelton@rismedia.com
