Helen Jeong had her most successful year as a real estate agent in 2020, with five sales that brought in a record amount of cash. However, the following year saw a dramatic shift in the industry, as mortgage rates skyrocketed, causing sales to fall and commissions to plummet. Jeong, like many others reliant on home sales for a living, started to worry. Over the next two and a half years, she only managed to close three more sales, a significant decline from her previous success. “2020 was my best year,” Jeong reflected during the California Association of Realtors conference in Anaheim. “After that, I’ve only had one closing per year, and that’s terrible. … Buyers were all priced out.”
The pandemic brought a surge in home sales, fueled by historically low mortgage rates. However, the Federal Reserve’s decision to raise interest rates to control inflation caused a reversal in the real estate market. Southern California saw a nearly 50% decrease in home sales over the past two years, despite prices continuing to rise due to limited inventory. While homeowners are enjoying significant gains from selling their properties, professionals like agents, inspectors, escrow officers, and mortgage brokers are struggling to find business.
The impact of this industry slowdown extends beyond real estate transactions. “All the ancillary services around real estate transactions are severely, severely impacted,” noted industry analyst Pat Veling. “And that’s driving a really significant economic slowdown within the real estate and related channels. It’s bubbling under in the overall economy, and nobody’s really talking about it.”
Data from market trackers confirms the decline in the real estate market. Home sales have fallen for 20 consecutive months in Southern California and 26 consecutive months statewide. For example, only 97,197 homes were sold in Southern California during the first seven months of 2023, the lowest total on record for that period. Although home prices have increased, sales revenue in Southern California and other parts of the state has decreased by 35%, resulting in reduced earnings for industry professionals. On average, real estate agents have seen a decline of 19% to 29% in business during the latest measured year. Shockingly, over 5,100 agents who were previously earning income ended the most recent 12-month period without a single sale.
The slowdown in the real estate market has had a wider impact on employment as well. While Southern California experienced overall job growth of 2.1% since November 2021, the real estate sector did not share in this growth, with employment levels remaining stagnant. Mortgage lending, in particular, saw a decline of 4.7% in jobs during this 20-month period. Even furniture stores have felt the effects of reduced home sales, with a 7.6% decrease in jobs over the past 18 months.
Lending activity has also taken a hit, with mortgage applications dropping to a 27-year low in early September. Self-employed operators like mortgage brokers have been significantly affected, seeing a decline in lending opportunities. Scott Griffin, a mortgage broker from Los Angeles, referred to this period as “the great pause,” as the rise in interest rates has led to decreased buyer activity and subsequent declines in mortgage volume.
Surviving the industry slowdown was a major topic of discussion at the California Association of Realtors conference. Session topics included strategies for success in a challenging market and dealing with stress and burnout. Agents are feeling the financial stress as it impacts both their personal and professional lives. Some are considering career changes or taking on part-time jobs to make ends meet. Others are turning to stress-relief techniques like meditation, yoga, or exercise to cope with the uncertainty of the market.
Despite the slowdown, industry professionals are urged to stay proactive in their marketing efforts and maintain connections with past clients. Realtor Clarissa Azevedo advised her peers to focus on self-promotion, social media presence, and follow-ups with previous clients. Realtor Linda Montgomery has remained busy by staying in touch with her database of past clients, even though her business has declined by about 25% in the past year. She has also partnered with lenders who offer refinancing options to incentivize buyers who are hesitant due to high mortgage rates.
The real estate industry is facing challenges that require creative solutions and resilience. Although some professionals have managed to find success amidst the slowdown, others have left the industry due to intense competition and the difficulties presented by the current market conditions. It is crucial for industry professionals to adapt to the changing landscape and explore innovative strategies to navigate these challenging times.
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