Facing a down market, residential brokerages enter wartime mode

The party's over and the hangover has hit hard. How are firms getting to "default alive?"

Nov.November 01, 2022 07:00 AM

(Photo-illustration by Paul Dilakian/The Real Deal)

Gary Keller is the closest you can get to an elder statesman of residential brokerage. The founder of Keller Williams has guided his firm through four decades of market fluctuations and played a Rooseveltian role in the industry when things have gotten tough, optimistic even in the toughest of times.  

So when Keller says that today’s outlook reminds him of the Great Recession, the industry pays attention.

The second year of the Great Recession, we had the largest drop in one year in recorded history,” Keller said last month at an Inman virtual conference, adding that “1.5 million transactions were taken off the book.” 

A combination of rising mortgage rates and home prices that are out of reach for most Americans will mean this year will see deals decline by about 1.3 million, he predicted. 

After a bonanza period of record transaction volume, prices and profit-making, the residential industry is contending with a market that changed brutally fast. Average U.S. mortgage rates are around 7.2 percent in  for a 30-year fixed loan, the highest since 2001. Lawrence Yun, the chief economist at the National Association of Realtors, predicted they could surge all the way to 8.5 percent. 

Applications for home purchase loans are down over 40 percent compared to last year. From June to August, luxury home sales declined 28.1 percent year-over-year, the largest fall on record, according to Redfin.

These shifts means that many firms, and their leaders, are now in wartime mode — forced to rapidly cut costs, scale back on investments and focus on survival. For executives who were anointed during the good times, it’s a major transition. 

Meanwhile, residential-focused startups that raised gobs of capital and were in hypergrowth mode have had to pivot. They’re now chasing a position that renowned venture capitalist Paul Graham terms “default alive” — if their expenses stay constant and their revenue growth continues on the same trajectory, will they be able to keep the lights on without raising more funds?

The answer, for many, has been a hard no. Several startups have laid off large chunks of their workforce, and others are scrambling to raise money at valuations far lower than a year ago. For some, it’s a matter of time before they’re out of business. 

This month, The Real Deal took a look at some of the wartime decisions taking place across the industry, and dove into the conditions causing them. Check out our coverage below:


Related Articles

arrow_forward_ios
John Giannone and Jac Credaroli (Credit: iStock)
Two Elliman agents launch platform to provide renters, buyers and sellers up to $50K in unsecured loans
Two Elliman agents launch platform to provide renters, buyers and sellers up to $50K in unsecured loans
Jacob Sudhoff and Scott Durkin (Credit: Sudhoff Companies, Emily Assiran, iStock)
Douglas Elliman is coming to Texas
Douglas Elliman is coming to Texas
Douglas Elliman chairman Howard Lorber (Credit: Getty Images and iStock)
Elliman’s revenue rose 18%, after sales frenzy to avoid New York’s new transfer tax
Elliman’s revenue rose 18%, after sales frenzy to avoid New York’s new transfer tax
(Getty; Illustration by The Real Deal)
Agents: Life is good under 7%
Agents: Life is good under 7%
Coach Realtors' Mary Alice Ruppert (Coach Realtors Associate, Getty)
Sellers relent: Long Island home price cuts at 3-year high
Sellers relent: Long Island home price cuts at 3-year high
(Getty; Illustration by Kevin Rebong for The Real Deal)
Investor home purchases plummet 30%
Investor home purchases plummet 30%
From left: Peter Hungerford, Shai Segev, and Michelle Haruvi (Getty, LinkedIn, Zillow)
She wanted a piece of the Haruvi empire. She got an eviction notice instead
She wanted a piece of the Haruvi empire. She got an eviction notice instead
Home sales plummet in October
Existing home sales sink for ninth straight month
Existing home sales sink for ninth straight month
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...