On June 22, 2023, Federal Reserve Chairman Jerome Powell announced that the Federal Reserve would likely raise interest rates at least once more. This would follow a series of interest rate increases that began in March 2022. At that time, rates stood at just 0.25%. Now, they are between 5% and 5.25% after many hikes. This has had major impacts on investment markets and the rate of inflation in the United States and beyond. It is one of the driving factors for how our economy will perform in the years to come. It is also something that will have an impact on how much real estate agents are likely to make. Interest rate increases are one of the headline policy shifts that have occurred recently, but they are just one of a myriad of economic factors that go into the health of the real estate industry.
The Impact of Economic Events on the Real Estate Market
When people speak of the economy they are speaking of a complex system of interacting factors. These factors are beyond the control of any given individual, but they have an impact on us all. Real estate agents might be among the most vulnerable to large-scale economic factors when it comes to their income because it is so dependent on the economic fortunes of others.
Economic downturns are particularly hard on real estate agents because:
- They rely on people feeling confident that they can afford a house
- They work on commission and even a small decline in sales can have a big impact on their income
- Many more people might try their hand at selling real estate if they have lost their primary source of income
As you can see, there are a number of things that work against real estate agents when the economy is struggling. Let’s take a look at each one in a little more detail.
Consumer Confidence and Housing Sales
It takes a fair bit of confidence in one’s financial status to consider purchasing a home. One must be fully committed to the thought that they will have a stable and steady income in the future. Otherwise, they won’t want to take on the burden of a mortgage. Therefore, there is a direct connection between consumer confidence and housing sales. Fortunately, there is a specific measurement of consumer confidence that one can look at if they wish. It is called the US Consumer Confidence index, and it is worth keeping an eye on. When confidence is high, housing sales are likely to continue to hold steady or increase. However, when it takes a dip, real estate agents should take note and prepare themselves.
Commission Work
There is always a risk with working on commission. On the one hand, it feels like the fairest way to do things. You are directly rewarded for the sales that you make. However, you should remember that commission work goes both ways. There are circumstances when your commission work might not go nearly as well as you had hoped that it would. If the sales aren’t there, they aren’t there, and your money won’t come in either.
Increased Competition
Negative economic conditions can cause people to lose their jobs. If that happens, then many more people might look at getting involved in the real estate market. They might try their hand at selling houses, just like you. Therefore, the level of competition that you face can also increase significantly. This might cause you to get squeezed out of the commissions that you would have otherwise made. Once again, economic conditions might have a direct impact on your ability to make a significant income.
It is certainly difficult to be a real estate agent at any time, but even more so when the economy takes a turn for the worse. Think about that and prepare yourself for that possibility if it should arise.
