Real estate agents and brokerages across the country have faced numerous challenges in 2022, from mortgage rate hikes to record low inventory and a rapid decrease in homebuyer demand. As the industry looks to 2023 and the challenges the new year may pose to agents and brokerages, RealTrends sat down with RE/MAX president Nick Bailey for a discussion on the year that was and what his expectations are for the year to come.
This interview has been edited for brevity and clarity.
Brooklee Han: Before we look at what 2023 might have in store for the real estate industry, what were some of your biggest takeaways from 2022?
Nick Bailey: I think most are going to walk away and realize that 2022 was better than a lot of headlines made it out to be. Second, and something I think we are going to take with us into 2023, is that we were making comparisons of ’22 based off ’21 and ’20, both of which were anomalies due to the pandemic. They are just years that are difficult to compare anything to.
So, if you strip those two years out and did a 10 year look back, and then look at ’22 and forecast ’23, what we are looking at is within a couple percentage points of what the years prior to the pandemic looked like. We always look back year over year, and in ’22, it just isn’t fair to look back to a year that was a standout for a variety of reasons.
When we start looking back at ’23 and comparing year over year with ’22, I think it will show that what we’ve experienced is a rebalance. We had two of the most extreme sellers’ markets that we have had in the history of real estate in ’20 and ’21 — and that is not sustainable. I think what we will see emerge is a level of calm as people realize that both buyers and sellers will be on more equal footing, which is healthy for the overall market.
BH: As we start to take a look at 2023, what are you expecting to see as some of the major trends for the year?
Bailey: I think we will see days on market continue to increase, and inventory levels [will] increase as well. But I still think that we will still see demand for housing due to the overall inventory shortage we have had and the strong demand we have had from buyers.
Over the fourth quarter of this year, we have had mortgage rates bouncing around and continued uncertainty about inflation, but I think some of that will settle a bit more as we head further into 2023. I think we will see rates come down a bit more from where they are now in 2023.
BH: Inventory has been a hot topic for a while, and I know a lot of agents are struggling to get some of those listing leads, as homeowners who are locked in at a 3% mortgage rate are wary to sell their home. How do you see this impacting inventory in the new year?
Bailey: This whole comparison of rates is based on historically low 30-year fixed-rate numbers, but the reality is, regardless of the rates, life events happen. People get married, people die, people get divorced, people have kids, and people have to move for jobs or family. So, certainly if there are financial advantages to not moving and the current house fits the needs of the people, then they won’t move.
But every year, whether it is an economic boom or a recession, houses get bought and sold. You may not like the new rate you get, but there is always an opportunity to refinance. We are also seeing the return of alternative mortgage products, like ARMs, which a lot of people are using to lower their mortgage cost while they wait for a chance to refinance.
Additionally, I don’t believe we will see home prices rising by double digits like they did in 2021 and earlier this year, which will also create some relief for home buyers.
BH: The historic home price appreciation of the past few years has also been in the news quite a bit recently. What are you expecting to see with home prices in 2023?
Bailey: When people say they expect prices to ‘drop,’ I don’t think that in aggregate they are going to drop, but I also don’t think they will appreciate like they have been. It all comes back to a rebalancing in the market, and due to that, I think it is going to get more local.
You look at past years in the Midwest, which has been known for always having 2% to 5% appreciation — a real ‘steady Eddie’, even when California and Florida were going up 10% to 15%. What we also saw historically the last couple of years is that it didn’t matter where the market was. Rural markets, and outlying markets especially, had the highest price appreciation as people left for areas that were not as densely populated.
I don’t think we will see that trend anymore, and I think those outlying areas will return to their low single-digit price appreciation. The areas that went up the most will correct the most.
You take the classic Boise, Idaho, that sat at the top of the list quarter over quarter for a long time, and prices there will come down. But in metros that went up 24% one year and 28% the next, you are looking at huge gains. So even if price drops of 8% to 10% happen in the next year, those homeowners are still going to be up compared to three years ago.
If agents can successfully communicate that to their sellers, I don’t think price drops will have too much of an impact on sellers deciding to list.
BH: Over the course of the pandemic, thousands of new agents have entered into the profession, and are now faced with the task of navigating rapidly changing housing market conditions. What are you seeing and hearing from agents as they prepare to tackle everything that is headed their way in 2023?
Bailey: I believe that some agents in the last couple of years have been renting their business, not owning it. I do believe that some agents are clueless, and all of a sudden, they woke up one day and thought they’d been in real estate for two years, [only] to find the market had changed and they are starting from scratch again.
At RE/MAX we are fortunate that we have two things on our side. One is productivity and the other is experience. The average RE/MAX agent out-produces our next closest competitor two -to-one, but we also have more than double the years of experience right now. The average RE/MAX agent has over 15 years of experience, where the average in NAR is seven.
So, if we look back seven years, those agents have only known a sellers market. But if you have been in business for 15 or more years, you went through the Great Recession, which was the biggest shift and change in the market in recent memory, and we definitely are not going through something like that right now. The agents that have had that experience of going from a sellers’ market to a buyers’, and rates going up and down, know how to adjust their business.
As a firm, we have been around for 50 years. We have gone through seven recessions, and we know that real estate is cyclical. I believe education is the key to navigate any type of change, so we are leveraging our RE/MAX University system to make sure that our content is talking about the things that are important to market conditions right now — like longer days on market, managing sellers expectations, and how to properly price homes when conditions are like what we are currently seeing.
If anyone thinks they are going to sell real estate in ’23 like they did in ’20, ’21 or early ’22, they aren’t going to make it.
BH: What are some of the biggest changes you expect to see in 2023 regarding how agents sell homes?
Bailey: Even as recently as a couple of months ago, you could still see photos of homes going on the market and they aren’t staged inside — there is clutter everywhere and it is kind of a mess. Now, a lot of the houses I am seeing come on the market are staged much better. It is a lot more professional.
It went from kind of this slapdash ‘let’s just get it on the market and it will sell approach’ to what feels like a more concerted, focused, and strategic effort. I think agents that never even changed how they did things in the first place will continue to see success.
But, in general, what I always tell agents is that the area you must be most focused on and well educated in is wherever the highest friction point of the most competitive sector of the business is in any given market. What I mean by that is, if you look at the last year, the most competitive piece of the market was buyers bidding against each other. So, if you are a listing agent, it means helping your sellers navigate 20 offers, and if you are a buyers’ agent, that means having the skills needed to help your consumer win the transaction.
Now things are different, and agents are telling me they are struggling to sell homes because there are more listings and fewer buyers. And the buyers that are there can take their time and look at five different properties, so as a listing agent, you have to be good at marketing your property.
BH: Looking ahead, everyone is anticipating even fewer transaction sides in the coming year, and this of course means less revenue for brokerages. What is RE/MAX looking to do to manage costs in this slower market?
Bailey: This change really shows the resiliency of the RE/MAX model. In total, 60% of our revenue is recurring, regardless of what cycle the market place is in. That resiliency helps us quite a bit, as we don’t have to follow the micro of the real estate transaction market as closely as some of our competitors.
That being said, changes in the marketplace always just reek of opportunity, and we saw that earlier this year when we announced three strategic items that we were going to focus on, one being that we are outsourcing most of our technology and that we are not going to be a software company anymore.
We announced MAXTech in partnership with Inside Real Estate and kvCORE to not only bring their platform, but also Core Present, Design Center, and their teams’ module, all free of charge to all of our agents in the U.S. and Canada. Those have been some great cost savings — on top of putting our agents in a better position in the years ahead.
The second one was the conversion of independent real estate companies. In the last 10 years, not only have we seen a lot of agents join the business, but we have also seen a lot of new companies open. And now, when the market starts to contract, this is when people are not only evaluating costs, but reevaluating their value proposition. There are a lot more agents and companies out there than people looking for home, so they need brand recognition and ways to get more leads. We have this great opportunity to bring in some of those companies.
Then finally, I think we are going to see the overall agent count in the business go down at the national level — and I think that will really become apparent in ’23 and into ’24.
BH: What are some of the things we can expect from RE/MAX in 2023?
Bailey: You will see a continuation of our focus on brand awareness. Our structure is unique, and I think that we have the most unique advertising structure of any brand in the industry. The average RE/MAX agent contributes around $100 per month to our advertising funds, and it creates a $90 million advertising budget that doesn’t go up or down, even when the market does. While other companies right now are pulling back marketing dollars, we just have to figure out how to maximize our spend.
What I think you will see in the advertising space is, regardless of what the medium is, when you are competing a lot in the medium and then other companies pull out, we get a much larger share of the voice. So you will probably feel like you are seeing and hearing from RE/MAX more and more, but that isn’t because we are advertising more.
We will also continue to invest in the business to expand the company and continue growth via conversions and the rollout of our new MAXTech platform. Then we are hoping to expand the new teams’ model to the rest of the country and possibly some areas of Canada.
As we work on these strategic areas of the business to make sure that we continue to grow, I think you will also see that we will be the company [that] out-produces our next closest competitor on a per-agent basis as we continue to sell a lot of houses.