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In 2021, the third quarter was almost a kind of celebration.
Redfin CEO Glenn Kelman said his company “had a fantastic quarter” while revealing a 128% year-over-year increase in revenue.
Anywhere “delivered excellent revenue and earnings this quarter,” CEO Ryan Schneider says about his company an 80% jump in revenue defying expectations.
“Looking ahead, we are excited about our growth prospects in 2022 and beyond,” then CEO of RE/MAX Adam Contos said of the record turnover of his company.
But a year later, “2022 and beyond” doesn’t sound so hot.
From the start of the year, rising mortgage rates undermined demand for loans and began to put pressure on house prices, which are should fall nationwide in the near future. These conditions have significantly slowed the housing market and led to thousands of layoffs in the real estate sector. And comments from industry leaders of late have tended to be disastrous rather than exuberant.
“From a simple transaction drop”, Gary Keller recently saidfor example, referring to 2022, “it’s at least the second worst in terms of how fast it’s fallen”.
It is against this backdrop that many of the largest real estate companies are gearing up to release their third quarter results. The third quarter covers July through September, which this year was a time when the market in some regions was going from bad to worse.
As a result, this month’s earnings reports will offer the first in-depth insight into how companies are coping with tougher times. In other words, while every earnings season technically matters, this one perhaps matters more than any other in recent memory because it coincides with such significant changes in the market. As Coldwell Banker’s Mr. Ryan Gorman recently hinted, today’s market is one that separates the wheat from the chaff. Earnings reports show who could do it.
Already, two major companies have reported profits: Anywhere, who reported revenues are falling thanks to a “deteriorating market” and Costar making it saw its revenue and profits increase. But here’s what you need to know about the remaining reports:
Can iBuying survive a slower market?
One of the biggest questions asked in this earnings report is what happens to iBuyers in a market where homes aren’t appreciating quickly or at all. In the early years, when price growth was strong, companies like Opendoor and Offerpad could buy homes, sit in them for a few weeks, and theoretically resell them for a profit. But this is not the case today, which raises questions about the viability of the model.
Significantly, analyst Mike DelPrete reported in september that Opendoor was selling homes at a loss for the first time. Such a turn of events is likely to strain the company’s finances and appear in the next report. On top of that, all big iBuyers have have recently seen their stock prices fall to historic lows – suggesting that investors are skeptical of the concept. In the case of Offerpad — which was beneficial to all of the past three quarters – stock prices have fallen so low that the company could eventually face the threat of delisting from the stock market.
Key issues:
- Did any iBuyers manage to generate profits in the third quarter?
- What kind of inventory do iBuyers currently hold?
- How much money do they have on hand to help get through the tough times?
- How many transactions do iBuyers make and what are their average selling and buying prices?
Reports to watch:
Notepad: Wednesday, November 2
Door open: Thursday 3 Nov.
Redfin: Wednesday, November 9
What happens to the number of agents?
Increasing the number of agents has been a key part of the story of fast-growing new brokerages, such as Compass and eXp Realty. Even an older company, such as Keller Williams, publishes agent counts despite being private and therefore not required to report revenues like a public company.
However, as Gorman pointed out during his recent conversation with Inman, cooling markets generally see the total number of real estate agents fall. This means there will be more competition for remaining agents and more focus on who actually selects the best talent, as well as the most productive teams.
Key issues:
- Who loses the most agents and the fastest?
- Are there any companies increasing their number of agents?
- What does the number of US agents look like compared to international agents?
- How many transactions do agents from different companies make on average?
- Is there a model? For example, are newer or older companies doing better at recruitment and retention?
Reports to watch:
eXp World Holdings: Wednesday, November 2
RE/MAX: Thursday, November 3
Keller Williams: Wednesday, November 3
Douglas Elliman: Friday, November 4
Fathom Realty: Monday, November 7
Compass: Thursday, November 10
How bad is the mortgage situation?
Mortgage companies took the first hit from the housing slowdown thanks to rising interest rates. They were the first to make major layoffs, and they are still suffering today, as rates have climbed above 7 percent. The situation has become notable enough that this week the the wall street journal take a deep dive in Rocket Companies – the largest mortgage lender in the United States – exploring how the company has recently taken a dive “down to earth”.
Mortgage company earnings are virtually certain to be down from the recent past. The question, however, will be how far and what they do in response.
Key issues:
- How much have revenues and profits dropped at mortgage companies?
- Are there any mortgage companies that are managing to turn a profit right now, and if so, how?
- Did they articulate some sort of Plan B type pivot to offset the drop in demand for loans?
- Some companies have added mortgage products as an ancillary service to their other bread-and-butter offerings. How are these businesses doing and are mortgages dragging them down?
Reports to watch:
Zillow: Wednesday, November 2
Rocket companies: Thursday, November 3
Keller Williams: Wednesday, November 3
Redfin: Wednesday, November 9
What happens to tech companies?
It’s kind of a catch-all category, as real estate tech companies do a huge range of different things. Zillow is a tech company, but so are WeWork and Vrbo’s parent Expedia.
What is clear, however, is that Wall Street investors have recently soured somewhat in both real estate and tech, which means companies with a foot in both worlds have in some cases were double rang. Observers have also begun to note that the days of easy money for startups are seemingly over, for now, which means there’s growing pressure on tech companies to turn a profit. .
Despite being a catch-all, this category may also turn out to be the most interesting. For example, Zillow used last year’s third quarter earnings to announces the end of its iBuying program Zillow offers. There probably won’t be such big fireworks this year. But Zillow and others are huge companies and what they do has a huge impact on real estate.
Some companies, such as Redfin, have also dipped their toes into multiple products. Redfin is a brokerage and an iBuyer and a mortgage lender. Earnings reports from these companies will offer clues as to how diversification works, which areas are strongest, and how horizontal integration compares as a strategy to keep a narrower focus.
Finally, some of the technology companies have been at the forefront of the debate over what role real estate agents should play in the industry. So it’ll be worth keeping an eye out for news on agent-focused services, such as Zillow’s Premier Agent.
Key issues:
- Does Zillow have any news on its post-iBuying pivot and Zillow 2.0 strategy?
- What does web traffic to portals look like in a slowing market?
- What services stand out, for good or ill, in companies that have diversified?
- What do strategic moves in the technology space mean for real estate agents?
Reports to watch:
Zillow: Wednesday, November 2
Expedia: Thursday, November 3
Door open: Thursday 3 Nov.
Redfin: Wednesday, November 9
WeWork: Thursday, November 10
How bad is the recession?
One of the big questions in real estate right now is how bad things will get and how long the downturn might last. The numbers in the reports will offer clues on these topics. But also, subsequent investor reports and calls always include comments from senior executives. That means it’s a rare opportunity to hear the likes of Rich Barton, Robert Reffkin, Glenn Kelman, Glenn Sanford, Eric Wu and many other great leaders address the state of the market directly.
Earnings reports often include a bit of a corporate relaunch, but investor calls also involve executives answering questions from analysts, which means the calls tend to produce off-the-cuff and sometimes colorful commentary.
Key issues:
- What are senior leaders saying about the crisis?
- Do some leaders seem more optimistic or downtrodden than others?
Reports to watch:
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