Real estate companies are up against plenty of headwinds under a changing housing landscape. Housing affordability, maintaining sufficient inventory and keeping up with technology are among brokerages’ biggest challenges over the next two years, according to the National Association of REALTORS®’ “2023 Profile of Real Estate Firms,” a survey of more than 5,000 executives and senior management from companies nationwide.
“With interest rates rising to more than 20-year highs, it is no surprise that the biggest current concern for real estate firms is housing affordability,” says NAR Deputy Chief Economist Jessica Lautz. “This surpassed the concern of maintaining sufficient inventory, which we saw in 2021.”
NAR last conducted the survey in 2021.
Firms expressed in the survey that these challenges are hampering their profitability. Only about a third of firms—or 30%—expect profitability or net income to increase this year, down from 58% in 2021. “Due to tight inventory, the outlook among real estate firms is more conservative since the pandemic-induced housing boom,” Lautz says.
Real estate brokers and executives also expressed generational concerns that could impact housing’s outlook, such as young adults’ decreasing ability to buy a home and young professionals’ view of homeownership versus renting, the survey found. “There are fewer buyers who can purchase a home due to the rise in prices and interest rates, and fewer sellers are motivated to make a move,” Lautz says. “While sales are down, sales volume has increased as home prices have augmented because of limited inventory.”
Last year, single-office firms posted a median sale volume of $5.3 million and 15 real estate transaction sides, up from $4.5 million but down from 19 transaction sides in 2020, the NAR report shows. Firms with four or more offices recorded a median sales volume of $154.6 million and 403 transaction sides in 2022—up from $146.2 million but a decrease from 571 transaction sides in 2020, according to the report.
The headwinds most cited by both residential and commercial real estate firms over the next two years are:
- Housing affordability
- Maintaining sufficient inventory
- Keeping up with technology
- Rising costs in the industry
- Local or regional economic conditions
The following is a breakdown of the biggest challenges cited by residential and commercial firms.
Adding Add-On Services
Many firms are offering in-house ancillary services to their real estate clients. The most common in-house service is business brokerage, followed by commercial consulting services, relocation services and staging services.
Companies Show Resilience
Despite market challenges, real estate firms still have their eyes on growth. Forty percent of firms reported they were actively recruiting sales agents in 2023. Execs cited these main reasons for actively recruiting more sales agents:
- Growing their primary business
- Recruiting more experienced agents
- Expanding the diversity of agents
- Expanding into new markets
- Replacing agents who have left the firm
Brokers surveyed say they expect to face increased competition from virtual firms (38%) and nontraditional market participants (28%).
Overall, looking ahead, real estate companies’ performance over the next two years will greatly depend on how their geographical areas fare against market headwinds as well as state and local laws and regulations. Nevertheless, while challenges remain, “the real estate industry has experienced several unprecedented years recently,” the report notes, but “many firms have remained resilient.”