Tag: Realtor

Working as a mortgage lender in Roanoke for the past 18 years, Jason Bialek experienced everything from the financial crash of 2008 to the historic spike in home sales during the COVID-19 pandemic.

Following that bonanza in 2020, though, Bialek and others in the residential real estate industry will probably look back at this period as one of the most challenging times in their careers. Mortgage rates zoomed 5 percentage points over the past three years, and that’s combined with historic low housing inventory in Virginia, which has hurt real estate agents, lenders and current and prospective homeowners.

Bialek survived two significant rounds of layoffs in August 2023 at his company, Guaranteed Rate, the sixth-largest nonbank mortgage lender in the nation. Although he kept his job as a branch manager and vice president of mortgage lending, which he’s held since 2017, thousands of other employees were terminated. (The company declined to disclose an exact figure.)

The layoffs came after an influx of hiring at Guaranteed Rate during 2020 and 2021, right as the housing market peaked with the most home sales since 2006. In response, the company “probably” overstaffed, John Palmiotto, who resigned as the company’s chief of retail production, told the Chicago Tribune last summer. Palmiotto estimated the company’s layoffs were in the thousands nationally.

In Virginia, the lending industry lost about 12% of its loan officers in 2023, according to the Mortgage Bankers Association, and anecdotally, real estate professionals say they’re seeing many colleagues leave the industry following the Federal Reserve’s multiple interest rate hikes to address inflation, which significantly impacted mortgage rates. The central bank is expected to cut rates several times in 2024, from 5.25% to 5.5% to a possible low of 3.75% to 4%.

That will help borrowers, but rates are just part of the picture. Real estate agents and homebuilders are also preparing for major shifts in their industries’ landscapes, as the number of Realtors is already shrinking in Virginia, a reversal of the field’s growth in 2020 and 2021.

‘Eat what you kill’

A December 2023 report from Virginia Realtors observed a 9.5% year-over-year decrease in home sales across the state in November 2023 — the smallest year-over-year decline in statewide sales activity in about two years. “Some markets could finally be approaching the bottom of what has been a slow 2023,” the report stated, noting that active house listings also appeared to have reached a bottom.

Virginia Realtors President Tom Campbell said he expected to see some improvement in the tightness of the market. At 7.79% in October 2023, the average 30-year fixed mortgage rate was the highest it’s been since 2000, after hitting its lowest point ever — 2.65% — in January 2021.

With fewer people putting their homes on the market during this period of high rates and expensive house prices, real estate agents are leaving the industry after swarming to it starting in 2020.

From 2019 to 2021, 2,626 new Realtors in Virginia registered with Realtor associations, marking a nearly 6% increase across three years, according to the National Association of Realtors. During the past two years, however, more than 1,600 Realtors have left the association, bringing down the total number of registered Virginia Realtors from a peak of 36,445 in 2021 to 34,822 in October 2023.

“I think most Realtor associations across the state are budgeting for a modest loss in membership,” says Laura Lafayette, CEO of the Richmond Association of Realtors.

One of the primary reasons, she says, are the “golden handcuffs” keeping homeowners from selling because they purchased their house with a much lower mortgage rate than the current one. More than 60% of homeowners with a mortgage have a rate that’s lower than 4%, and 82% have a rate under 5%, according to Redfin data.

Increased rates heavily impact buying power, with every percentage point increase adding about $35,000 to the cost of a house, says Ryan McLaughlin, CEO of the Northern Virginia Association of Realtors. For those trying to sell homes and mortgages, that’s a major disincentive for their customers.

“It pushes so many people out of the market when the rates are 7.5% versus 5.5%,” Bialek says. “I mean, you’re talking millions of people that are pushed out of qualifying when the rates change like that.”

At the end of 2023, the national 30-year fixed mortgage rate was 7.45%, a slight decline from last autumn, but still high for many buyers — especially prospective first-time homeowners.

Home sales in Virginia had fallen 12% year-over-year as of October 2023. While lenders are facing a 75% decline in mortgage activity compared with 2021, according to Fannie Mae, Realtors rely on sales commissions for their income, so dropping home sales could reflect a significant drop in revenue.

Lafayette says about a quarter of those who left the Realtor profession at the end of 2022 had fewer than five years of experience, according to data her association has collected.

“I think our larger firms are designed to weather these storms,” she says, adding that she wouldn’t be surprised to see those firms shrink their footprints in response to the downturn. “It tends to be an ‘eat what you kill’ profession, so you’ve got to have some cash reserves.”

Although it hasn’t manifested yet as a major factor in Virginia, a $1.8 billion federal jury verdict in October 2023 against the National Association of Realtors and several large brokerages — holding that they artificially inflated commissions to real estate agents — could alter the national residential real estate landscape, some experts have noted. In addition to the damages awarded, which could rise as high as $5 billion, home sellers would no longer need to pay their buyers’ real estate agents. Although the NAR plans to appeal the verdict, there are similar lawsuits currently wending through other courts, and investment banking firm Keefe, Bruyette & Woods estimated in a November 2023 New York Times report that commissions could decline as much as 30% annually.

For Brad Thomas, a Realtor at Vinton-based Mountain View Real Estate who’s been in the business since 2008, the changing headwinds of the market have meant leaning more on commercial sales and his house-flipping business to make up for the downturn in residential sales.

“It definitely is hurting certain people in the short term, but that’s the natural progression of the real estate market,” says Thomas. “Everything goes in cycles.”

To Thomas, these cycles are necessary to keep a healthy market, which he believes was not the case in 2020 and 2021 when consumers were buying houses well over asking prices and sometimes without an inspection.

Now, a house that was getting 10 or 11 offers two years ago is getting just one or two, he says. Yet despite less competition, home prices are still rising.

Inventory battle

In addition to rate hikes affecting the national residential real estate market, Virginians particularly have been impacted by low housing stock, which is adding pressure to housing affordability and the amount of supply real estate professionals have to work with.

Nationwide, unsold inventory was at a 3.6-month supply in October, reflecting the estimated number of months it would take for the current homes on the market to sell. Virginia had a 2.2-month supply during the same period.

A six-month supply is associated with moderate home price increases, and anything below that is expected to push prices up rapidly, according to the NAR. In Richmond and Northern Virginia, two of the state’s tightest markets, inventory supply is as low as 1.5 months and 1.05 months respectively, according to reports from those regions’ Realtors associations.

NAR said in December 2023 that the Washington, D.C., region, including Arlington County and Alexandria, ranked No. 10 in its list of markets with the most pent-up housing demand.

And in Richmond, “we’ve had an inventory shortage for a very long time. You’ve got real estate professionals who have less pie on the table to share,” says Lafayette. “It’s created a very challenging environment to work in and a challenging environment for some people to make the income that they would have made just two years ago.”

Low inventory is one of the reasons home prices are still ticking up in Virginia despite decreasing demand, and professionals like Bialek and Lafayette say they’re not optimistic about prices going down.

“A lot of people think they should wait for home prices to come down [before buying],” Bialek says. “That’s not going to happen.”

The effort to replenish housing inventory is under threat as builders have “blown through” their supply of buildable land since 2020, when they were addressing the spike in demand during the early pandemic, says Danna Markland, CEO of the Home Building Association of Richmond.

Lot inventories in Virginia have declined from a 36-month supply in 2012 to a 12-month supply in 2022, according to the Virginia Housing Commission.

“If we don’t address our land inventory, all these builders will not have the land product to be able to deliver a home to the market,” Markland says. “We could see a very different Richmond-region builder dynamic in the next five years.”

Although there’s been a “flurry” of new homebuilding, that spike will likely not be sustained and is really just making up for lost time, Markland says. The rate of housing stock growth in Virginia has been under 2% since the 1960s, according to the VHC, and was less than 1% from 2010 to 2020.

Limited buildable land for new home construction is also compounded with increased in-migration to areas like Richmond, Markland says. In total, the Richmond region added 27,640 people between April 2020 and July 2022, with close to 13,000 new residents moving from Northern Virginia to Richmond in 2021 alone.

At certain points over the past three years, Richmond-area builders reported up to 50% of their sales went to buyers from outside the metropolitan area, Markland says, as white-collar employees working from home had more geographic flexibility.

“There should be a heavy emphasis on increasing housing supply,” says McLaughlin, adding this can be facilitated by easing zoning regulations for developers.

2024 outlook

Virginia Realtors Chief Economist Ryan Price wrote in the organization’s November 2023 report that active listings were down by 0.7% from the previous year, although new listings rose by 0.3%. The median home price statewide was $385,000, up 5.5% from November 2022 — but in Northern Virginia, the median price was $656,500 in November 2023, up 5.72% from the same month in 2022.

Price wrote that the small decline in active inventory — the lowest decrease in the past eight months — as well as increases in listed homes in Central Virginia and parts of Hampton Roads indicate that the inventory levels “could be stabilizing.”

But Markland isn’t as optimistic about the Richmond region. She says land supply constraints could impact the price of new home construction, since buying and prepping land makes up a significant portion of construction costs.

“Even though we see fading strength in sales performance, there’s no way for those average prices to come down when markets are at a premium,” Markland says. “Construction of the home only makes up about 60% to 70% of the cost of the property. That land factor can swing significantly in the price.”

While rate hikes and sales decreases have eased, real estate professionals in Virginia continue to face evolving challenges. In part because of the limited land supply in areas like Richmond, the state’s inventory problem is likely to get worse before it gets better.

“The industry is waving this distress signal. We have a crisis on our hands, and we’ve got to address it,” says Markland. “But it can’t just be industry coming to the table, because lots are approved by local government.”