Why Real Estate Agents Are Doing It Tough

Real Estate Agent Demand Plummeting

If search volumes are anything to go by the demand for real estate agents across the country has and still is plummeting.

Google trends enables users to query search volumes of keywords over time. The below chart highlights the the search volume for ‘real estate agents’ since December 2004. The chart is on a scale of 0 – 100, with 100 representing the point at which search volumes were the greatest. For real estate agents this was in January 2005.

The glaring downward trajectory should be of serious concern for those in the industry, particularly the big franchise owners, as it should broadly be aligned to vendor demand for agent services and the resultant number of properties sold (i.e. revenue).

The fall is significant with less than 25% the number of searches occurring in November 2012 than in November 2004. Even on a more short term basis (see chart below), from November 2010 to November 2012, the reduction is search volume is 35%.

Seasonality is also evident with January and February the high volume months. This may in part have something to do with motivated property owners returning from periods of reflection over the Christmas break however conducting similar searches for ‘cars’ or ‘boats’ also highlights this January/February spike, so this is probably more related to general search volumes increasing given more spare time over this period.

A Leading Indicator?

There appears to be significant correlation between ‘real estate agents’ search volumes and the number of properties transacted. While this is far from causation, it never-the-less makes sense that it could be seen as a broad leading indicator for real estate agent wealth and more broadly the supply of real estate for sale.

Anecdotal evidence from real estate agents across the country suggests this dearth in volume is compounded by reduced fees, which area at multi-year lows, (with the possible exception of Tasmania and Queensland where inflation-indexed State guidelines are used).

For Sale By Owner

A quick cross check was done to see if the decline in real estate agent demand could be attributed to substitute offerings, such as an increase in those seeking to sell their properties privately. The below chart show the search volumes for the ‘for sale by owner‘ keyword, which currently generates 18,100 searches a month Australia wide (in contrast to 165,000 for ‘real estate agents’).

As can be seen the general decline is also evident although no where near as significant as for ‘real estate agents’, indicating that there may be some substitution occurring.

This isn’t surprising as technology is increasingly playing an important part in the sale of real estate in Australia, reducing the once perceived value of physical shop front advertising and so forth.

Conclusion

The fortunes of real estate agents are tightly linked to the demand for their services and more broadly for real estate. With demand for property also at decade lows (indicated by the lackluster housing credit growth) real estates agents are doing it tough and leaving the industry in droves (see 2011 AFR article).

What does the future hold? We remain of the belief that the property market will stagnate for a few years to come, both in terms of volume and price, for the reasons explained in our 2013 and beyond property outlook article.

Finishing on a positive note, for agents this bleak outlook may be ameliorated slightly with additional stock coming on to the market, thanks to a pick up in housing construction (see our summary of the RBA’s thoughts on this issue) and baby boomers needing to fund their retirements.

If you are thinking about selling, make sure you base your decision on an impartial assessment of your local agents performance metrics. For more on our service see our frequently asked questions or request your free report today.

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