Can’t Sell What You Don’t Have

I was struck by this statistic highlighted in the Wall Street Journal’s Commercial Real Estate Weekly email.

Source: Wall Street Journal Commercial Real Estate Weekly

Putting aside my petty satisfaction in spotting a typo in the Journal’s infographic, the imbalance here struck me as fascinating. The implication here is that roughly 1/3 of all residential brokers have no listings. And if we assume that the 80/20 rule probably applies, then a smaller number of brokers have the bulk of the listings, so it’s even worse than it appears.

Or is it?

After a bit of thought and some digging around, the eye-catching stat probably doesn’t mean much as I had suspected at first.

A hot market will always attract new entrants. This is especially true for residential real estate where the barriers to entry aren’t especially high. According to the NAR’s own historical data, during the prior peak there were roughly 1.3M realtors throughout 2007. By 2010, that number averaged around 1.1M, and continued to fall, averaging just under 1M in 2012.

What surprised me about the historical data was that we’re not seeing a pandemic-fueled spike motivated by higher unemployment and a blazing market. Actually, the number of agents has been consistently rising since 2015, and has held above 1.4M since November of 2019.

The bigger outlier, and the real story here, is the lack of available homes for sale. Housing starts are increasing, but only now approaching long-term averages. If we consider the period of below average starts after the Global Financial Crisis and the higher population today vs. the earlier period, it’s clear that we’re not meeting demand (and that prices are still rising).

Until our nation’s production of new homes can meet demand, we can probably expect high prices for single-family homes to persist. It’s Econ 101 in real life.

Elevated housing costs will continue to challenge affordability and will prevent most middle and lower income renters from making the leap to home ownership. These “renters-by-necessity” cannot afford to buy a home.

For investors in more affordable rental housing (like us), this situation is structurally bullish. But it’s also not sustainable from a political perspective and we should expect policy responses to address affordability. I’ll continue to watch this space carefully since government intervention surely presents one of the biggest risks to real estate.