Recent data shows tens of thousands of real estate agents are leaving the industry. It becomes relevant in a larger-scale way because realtors are in tune with the market and are the first to know when there’s a cooldown or something else brewing. The fact that realtors are leaving could spell further trouble for the industry.
More than 60,000 real estate agents have left the profession in the last six months, from data compiled by the National Association of Realtors.
Of course, it’s also important to point out that the number of real estate agents working in the profession was at an all-time high last October (1.6 million). In April, it was down to around 1.537 million.
Much like the housing boom, there was a real estate professional boom at the beginning of the pandemic, and the enormous price increases and record-breaking sales fueled it.
Historically, agents flood the market any time prices go up, with people seeing it as a way to make significant amounts of money off a housing boom.
However, we’re currently looking at a different picture than just a year ago. Sales of single-family homes went down 42% from a peak of 6.66 million in January 2021 to their April figure of 3.85 million.
In January 2021, the average annualized commissions paid to realtors was a high of $84,355, which fell to $56,632 in April 2023.
From April 2022 to April 2023, median prices declined by 4.1%, which was the biggest drop recorded in dollar terms, and in terms of percentages, it was the largest decline since January 2012. With realtors simply unable to make as much money anymore, it’s likely the earliest phases of them quitting en masse.
The number of agents working is still close to its historic high, and on the flip side of the larger real estate picture, the market has stayed pretty strong even though sales and prices have declined significantly in some places.
The National Association of Realtors collects data on how many professionals are members of the organization, and the group is forecasting that membership will drop in 2023 to 1.5 million. That would be a 3% decline; inflation-adjusted commissions per member will drop by 5.7%.
The NAR’s data shows tight correlations between average commission per member and agent flow into and out of business. The higher the average member commissions, the greater the growth in membership for the NAR. When income levels go below a certain point, historically, there’s a decline in membership.
Some economists have modeled and forecasted more severe downturns in real estate, where in 2023, the sales of existing homes could go below four million. If there was a scenario where, for example, annual existing home sales went to 3.9 million, and there was a 5% decline in home prices, there could be a 15% decline in NAR membership.
The big takeaway from most analysts and industry experts is that we might continue to see shrinkage in the pool of agents but not a collapse. Production skews to high producers, so more negative effects will likely be felt in brokerages’ bottom production levels.
It’s also likely that more agents will take on second jobs, or there could be an uptick in teams because low-producing agents might be more likely to move to positions on teams. This could then end up driving the formation and expansion of teams.
A lot of real estate professionals and analysts do believe that while the drop-off could vary based on what happens in the coming month, there will be a process of realignment similar to what was seen from 2007 to 2009, as far as more business flowing to fewer people, and shifts in agent pools.
Brokers will need to keep an eye on these trends to stay ahead of the competition and weather challenging situations more appropriately.
