Existing home sales in 2020 were slightly above 5.6 million units—the highest level since 2006, according to the National Association of Realtors. The last 3 to 4 months of 2020 saw annualized sales at levels above 6.3 to 6.6 million existing homes sales level—unprecedented levels. Are we setting ourselves up for another housing crisis?
A Historical Review of Housing
We examined the past 40 years of historical data to determine how far the last half of 2020 was above normal sales levels. One critical measurement to look at total home sales, both new and existing, and compare it to the total number of households—both owner occupied and rental.
The 40-year average of the above statistic is 4.8%. That means that 4.8% of all households purchased a home each year. The 2020 rate was 5.0% and 4.7% in 2019. The average for the years 2012 to 2019 was 4.6%. This data indicates that, while the overall 2020 results were closely in line with historical averages, the rate of home sales for the last four to six months of 2020 are well above both the 40-year average and the average for the most recent years.
New Levels of Home Sales
Taking a midpoint of 6.4 million existing home sales for the fourth quarter (with similar, higher levels of new home sales), this would mean a 5.7% to 5.8% percentage of home sales to households—a level not seen since the 2002-2006 period.
The point of this analysis is not to confirm that the housing market is overheated. We already know that it is. It’s to point out that we’re headed into existing home sales levels that preceded one of the worst housing crises of the past 50 years. While a rate of 5.7% to 5.8% is higher than is comfortable, the rate between 2002 to 2006 was in the 6.4% to 7% range.
Little Expectation of Earnings
One of the contributing factors in the 2006 to 2010 housing crash was the belief that if homeownership is a good thing; then more of will be an even better thing. This correlates with some of the same thinking that’s led to massive purchases of single-family homes for investment purposes by both individuals and corporate capital, the entry of iBuyers, and the explosion in capital invested in residential-related technology firms—with little expectation of earnings to support the valuations of these firms. Here’s an update of recent earnings by the national networks.
A Summary of 2020 Results
- Existing and new home sales: +6.2% above 2019
- Total sales volume: +13.6%
- Total residential gross commission revenues: +12.8%
- Total Realtor members at year end: 1.45 million up 3.6% from 2019
Keller Williams
- Closed residential transaction sides +7.9%
- Closed residential sales volume +16.0%
- Global residential sales volume +35.1%
Overview: Keller continues with solid growth. Will the tech investment lead to more?
Redfin
- Closed brokerage transaction sides +13.2%
- Closed brokerage revenues +25.1%
- iBuyer and other revenues declined -12.0%
Overview: Redfin continues to grow at a steady rate. Do results match expectations?
RE/MAX
- Agent count in U.S. and Canada -1.3%
- Worldwide agent growth +5.3%
- Gross revenues -5.8%
Overview: RE/MAX had some great growth globally. How will they handle some of the challenges in North America?
Realogy
- Closed residential transaction sides +2.7%
- Gross revenues all operations +6.0%
- Free cash flow +145.6%
Overview: Results look great, especially their free cash flow. We’re watching how they choose to accelerate growth.
Zillow
- IMT Segment revenue +13.6%
- Total Adjusted revenue +22.0%
- Total Adjusted EBITDA $342,993 versus $38,884
Overview: Strong EBITDA results. Will the change in business model renew faster growth?
Compass
- Gross revenues + 55.9%
- Gross Margin 17.8%
- Loss before taxes -30.3% from prior year
Overview: Great year-over-year growth. The challenge will be to get positive earnings.
eXp
We are awaiting results and will publish once they are available.
Steve Murray is founder of RTC Consulting and a senior advisor to HWMedia.
