By Muhammad Saleem
Real estate continues to be under pressure as mortgage rates hit their highest level since July, and the Mortgage Bankers Association reported a decline in applications to refinance and purchase homes compared to last year.
Shedding light on the issue while talking to CNBC, Serhant founder, CEO, and broker Ryan Serhant, said that inventory has been a major issue for a while, keeping prices higher.
Inventory Increase and Market Outlook
When asked, do you expect a boost in inventory as sellers get used to rates this year, but what might, if anything, cause inventory to be higher than you expect to the point where it might pressure prices?
He said that inventory has already increased. I think we’re seeing total supply at about 10% higher year-over-year. You have to remember, we just experienced back-to-back years of the slowest sales market for residential housing in the United States since the mid-’90s. I believe that America is open for business in housing.
I believe that people should expect that long-term mortgage rates will be between 6% and 7%, even though short-term rates will continue to come down. I expect sales to pick up due to pent-up demand that has been sitting on the sidelines for the past couple of years. As both buyers and sellers accept where rates are, they will accept the new normal and move. We’re seeing activity, even in our firm, in the first couple of days of the year—it has been a lot.
The Evolving Role of Real Estate Agents
Talking about the complexity of being an agent now, he said the job of being a real estate agent hasn’t changed at all. If anything, it has become more transparent, which is something that my firm and I have always pushed for—clear communication with clients, whether you’re helping them on the buy side or the sell side. If anything, more homes will be sold as more people are thinking about the process in which they purchase that home.
The agent, though, as you think about their business, right, they’re commissioned, they’re not salaried—they live and die by selling this home or that home.
If you sign a contract to buy a home that closes tomorrow, and there’s a commission agreement signed on either the buy or sell side, that’s how they’re compensated.
If it closes in a year, as in the case of new construction homes or towers that we sell in New York City, South Florida, and all over the country, sometimes you do your work as a real estate agent, working 15 hours a day, and you don’t actually get paid for that work until it closes six months or even a year later.
Realty Co. and Industry Innovation
Talking about his company, he said that Realty Co. is an incredible company. We just closed our $20 million Series A funding round, led by AltriArc, to enable nationwide expansion for brokerages and agents to access their commissions for pending deals within 24 hours, along with a full suite of other success services across every state. This is massive news for our industry.
Inventory Quality and Pricing Disconnects
In response to another question regarding a 10% increase in inventories, he said it depends on how picky you are. What is interesting about the amount of inventory we see out there is that about 50% of the active supply is considered stale.
This means there is a pricing disconnect between the seller and the buyer because many people sold at really high prices in 2020, 2021, and the beginning of 2022, and those prices are now the comps. Those have been set.
Now, 2022 closing prices are three years old. We have a new world now, with a new administration coming in two weeks and new interest rates. It’s a new normal, and so we’re resetting new comps. A lot of that stale inventory, where sellers have been sitting.
