Helen Jeong’s most prosperous year as a real estate agent occurred in 2020, when five sales generated the most cash she had seen in her 17 years in the business.
A year later, mortgage rates shot up like a rocket, turning the real estate industry upside down.
Sales fell. Commissions and earnings plummeted. And Jeong — along with a wide range of others who rely on home sales for a living — began to worry. The Lake Elsinore agent closed just three more sales over the next 2 ½ years.
“2020 was my best year,” Jeong said Wednesday, Sept. 20, between pep talks and training sessions at the California Association of Realtors conference in Anaheim. “After that, I’ve only had one closing per year, and that’s terrible. … Buyers were all priced out.”
During the pandemic, home sales boomed, fueled by mortgage rates averaging just 3% for a 30-year, fixed-rate loan. Then the Federal Reserve started raising interest rates to curb inflation. With mortgage rates now above 7%, Southern California home sales made an about-face, falling by almost half over the past two years.
Paradoxically, prices resumed rising even as sales plummeted due to an abnormally low number of homes for sale.
So, while owners are reaping huge gains by selling their homes, their agents, home inspectors, escrow officers and mortgage brokers are starving for business.
“All the ancillary services around real estate transactions are severely, severely impacted,” said industry analyst Pat Veling, president of Real Data Strategies in Laguna Beach. “And that’s driving a really significant economic slowdown within the real estate and related channels. It’s bubbling under in the overall economy, and nobody’s really talking about it.”
20-month drop
Numbers from a wide variety of indicators document this slowdown:
- SALES: Home sales have fallen for 20 straight months in Southern California, and for 26 straight months in California as a whole, data from market trackers show.
For example, just 97,197 Southern California homes sold during the first seven months of 2023, the lowest January-to-July total on record, CoreLogic figures show. This year’s sales tally is 41% lower than during the pandemic boom two years ago.
- REVENUE: Even though home prices are up, sales generated 35% less revenue in Southern California and other parts of the state, Real Data Strategies figures show. As a result, the industry’s share of those proceeds has been reduced by a similar amount.
Gross revenue from sales fell by $114 billion in the 12 months ending in June in an area covered by the California Regional Multiple Listing Service, which includes most of Southern California. The “CLAW MLS,” which covers west Los Angeles and neighboring westside cities, had a $33 billion decrease, while a separate MLS serving the Coachella Valley had a $5.2 billion revenue drop.
The average real estate agent did anywhere from 19% to 29% less business in the latest year measured, Real Data Strategies figures show. And at least 5,100 agents who made money in the preceding year ended the most recent 12-month period without a single sale.
“The market is in a really serious downward correction,” Veling said.
For example, Southern California’s overall job growth totaled 2.1% since November 2021, when home sales started falling on a year-over-year basis. But the real estate sector missed out on that growth, with employment levels essentially flat during that same period.
And the employment category that includes mortgage lending fared worse, with jobs decreasing 4.7% in that 20-month period.
Even furniture stores are feeling the pinch, since there are fewer households refurnishing new homes. Federal statistics show jobs at furniture stores fell 7.6% over the past 18 months.
- LENDING: Government jobs data don’t capture self-employed operators like mortgage brokers. Yet lending is way down, with mortgage applications in early September falling to the lowest number in 27 years, Mortgage Banker Association figures show.
“I’m calling it the great pause, and it began when the interest rates started their rise,” said mortgage broker Scott Griffin of Los Angeles. “When buyers are not buying, … we’re not seeing as much volume on the (mortgage) side.”
Survival strategies
Surviving the slowdown was a key theme at the California Association of Realtors conference last week in Anaheim. This year’s meeting included sessions on topics like succeeding “no matter what the market throws at us,” and dealing with stress and burnout.
Burbank-based real estate broker Karol Kochova, who led the session on stress and burnout, said financial stress is taking a toll on agents’ personal lives as well as their work.
“Unfortunately, that trickles down into the family life,” Kochova said. “It’s heartbreaking … to watch people going through financial hardship and depression.”
Some agents are thinking of career changes, she said, while others are taking part-time jobs like driving for Uber or Lyft. Some have taken up meditation, yoga or exercise to deal with the stress, while others are sinking into depression.
“It’s their stress level of not being able to predict what the market is going to do in the next six to 12 months,” Kochova said.
It’s not like agents have more time on their hands during a slowdown. In another session, Turlock agent Clarissa Azevedo told fellow Realtors they need to stay even busier, marketing themselves, posting on social media and following up with past clients.
That’s a mantra that Linda Montgomery of Hemet follows passionately. Montgomery, an agent with Temecula-based AARE, said her business is down about 25% in the past year, but she keeps busy following up with her database of past clients.
“The buyers I’m working with are kind of waiting, thinking (mortgage) rates will go down,” Montgomery said.
To get some buyers off the fence, she’s working with lenders who offer to refinance loans for free should clients buy now using a high-rate loan.
In a mock demonstration of industry desperation, mortgage broker Mark Pascual of Irvine held up a cardboard sign at the Realtor conference, begging for business instead of for food.
It was a bit of a gag because Pascual’s company, West Capital Lending, somehow managed to eke out an increase in business this year, he said. But with mortgage volume down about 70% since early 2021, that’s not the case for all mortgage brokers.
“People that I know, some have left the industry because of the competition and just the sheer difficulty,” Pascual said. “ … You have to have a little bit of tenacity. You have to have a little bit of grit. You have to go out of your comfort zone to start advertising to drum up your own business.”
‘Everybody’s down’
A walk through the CAR conference showed Realtors aren’t the only ones suffering. At booths for everything from home inspectors to home warranty providers, companies said their business is down 20-40%.
Even providers of for-sale signs, lock-boxes and refrigerator magnets are feeling the pinch.
“In 2021, we were hiring,” said Josh Niehaus, vice president of sales at Rancho Cucamonga-based Elite Group Inspection Professionals. “So, now in the decline … we had a little bit of layoffs and consolidated some positions.”
Two years ago, Elite Group was doing about 600 home inspections a week, Niehaus said. Now, they’re doing about 400 inspections a week. As a result, some 20 inspectors got laid off, while remaining workers have expanded duties.
“When you have layoffs in a company, you have that bystander effect,” he said. The survivors also “are worried about getting laid off.”
Most transactions also include home warranties or one-year policies to cover home fixtures like furnaces and refrigerators. With transactions down 41% over the past two years, however, Fidelity National Home Warranty of Concord has seen a 30% drop in its business.
“When transactions are down, we have fewer transactions to put our products on,” said Dave Miller, Fidelity National’s vice president of sales. At the same time, repair expenses have increased significantly as the cost of labor and parts went up — assuming you can get parts, which have been in short supply.
At a booth across the aisle, Steve Mapes of Disclosure Source said companies providing natural hazard disclosures for home sellers face a different challenge.
They have a fixed cost for maintaining up-to-date maps showing flood, fire and earthquake risks for each property, plus data about neighboring airports and other hazards that need disclosure during a transaction. Yet, demand for their $99 reports is down at least 40%.
“Everybody’s business is down because of fewer transactions,” said Mapes, Disclosure Source’s senior vice president. “We’ve had some layoffs.”
Jaime Velarde, owner of Rapid-o Signs in Santa Fe Springs, said the phones stopped ringing at his “for sale” and “open house” sign business in 2022.
He used to have three drivers doing sign installations at homes going up for sale. He’s now down to one driver, with business reduced by about 20%. This has been Rapid-o Signs’ worst year for sales since the business opened in 1999.
“Yeah, we’re in trouble,” Velarde said. “Every year was pretty consistent before that.”
Even in hard times, there are those with booming business.
Six-foot-tall Vicky Maliszewski — aka 6-Foot Vicky — is having her best year ever, ranking as one of the top sales agents at Glendora-based Kaleo Real Estate. So far, she’s closed at least nine sales, slightly ahead of her normal production level.
“It’s just getting out there and marketing myself,” Maliszewski said. ” … I have to get out there and let everybody know I’m head and shoulders above everybody else.”
She acknowledges not everyone is having a great year.
“I do know agents who don’t have any sales,” Maliszewski said. “They’re probably working at side jobs, doing Uber or DoorDash. Or they’re going back to the full-time jobs they had before they became agents. Not everyone’s immune to (the slowdown).”
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