As of December 2023, California recorded 89,225 active real estate brokers, marking a decrease of approximately 1,000 from the previous year. This trend continues as the number of active brokers seeks to stabilize after a peak of 109,500 in January 2010.
In contrast, the number of active sales agents has steadily increased, climbing from a low of 171,100 in 2014 to a peak of 226,300 in November 2022. However, by June 2024, this number has slightly decreased to 221,600.
Forecasting the Future of Sales Agent Licensing
According to firsttuesday, a significant drop in sales agent licensing is anticipated between 2024 and 2026 due to reduced sales activity and the downsizing of branch offices by employing brokers. A resurgence in licensees is expected, first with speculators and later with end-user homebuyers, likely propelling the housing market into its next expansion phase around 2028.
Current Agent-to-Broker Ratio
In a stable market, a natural equilibrium typically exists between active agents and brokers. Historically, this balance has been around 1.5 active agents for each active broker, as observed in 2002. During the mid-2000s recovery phase, the agent population surged, resulting in a ratio of up to 2.7 agents per broker. After declining post-boom, this ratio began to rise again in 2014, and currently stands inflated at 2.5 active agents for every broker.
As of the second quarter of 2024, the real estate market is still grappling with declining sales volume, marking two years of this downward trend following the significant disruptions caused by the pandemic.
It’s important to note that these active licensee totals mask a deeper issue of inactivity within the profession. Many agents who report as “employed” are not actively working in real estate, often holding onto their licenses while pursuing other careers.
The Issue of Inactive Licensees
Approximately 28% of the 310,000 sales agent licensees are reported as “inactive” by the DRE, meaning they are not actively employed by a broker. Yet, many of these individuals engage in property speculation or assist family members in transactions, despite not practicing as agents.
Market Speculation Trends
In October 2006, while 376,600 Californians held agent licenses, only 261,000 were active agents. In contrast, a more stable market in January 2000 showed 122,300 active agents out of 196,500 total licensees. The nearly doubled agent count in later years coincided with an increase in property speculation.
Future Predictions for Real Estate Licensing
Looking beyond 2024, the residential and commercial real estate markets are expected to return to core economic principles, balancing inventory for sale against buyers who are either owner-occupants or long-term investors rather than speculators.
As illustrated in the chart above, the current licensee population exceeds the standard agent-to-broker ratio of 1.5:1. This ratio is anticipated to gradually decline from 2024 to 2027 in response to decreasing home sales volume and prices.
Prospects for the Agent-to-Broker Ratio
Will the agent-to-broker ratio return to 1.5:1 once a downturn stabilizes the licensee population in the mid-2020s? Likely. The pandemic-induced surge in home prices generated optimism, leading to a rise in new licensees and license renewals. However, enthusiasm plummeted after sales fell in mid-2022.
Consumer Protection and Regulation Concerns
To protect consumers from potential harm due to insufficient oversight of mortgage loan originators (MLOs), stricter regulations may be necessary. During economic recoveries, the DRE must implement a stricter licensing exam to ensure that only the most qualified agents enter the field. Additionally, requiring apprenticeship training, similar to that of appraisers, could enhance agent preparedness.
Changing Demographics and Homeownership Rates
California’s demographic shifts, alongside low homebuyer demand, suggest a potential return to the “2021 excitement” within real estate around 2028. The rate of buyer-occupant homeownership decreased from 61% in 2006 to 55% in 2022, and this trend is likely to persist due to insufficient inventory and rising mortgage rates.
Adapting to Market Changes
As we move toward 2028, the demand for brokers and agents will decline, counterbalanced by the increasing needs for property management and mortgage origination. Investor capitalization rates will adjust to rising interest rates, changing the landscape for long-term real estate ownership.
The Agent and Broker Population: Past and Future Trends
In 2021, home sales surged due to low interest rates and stimulus measures. However, the subsequent collapse in early 2022 is expected to continue through 2026. As easy money fades, many newly minted agents are likely to exit the industry.
Market Strategies for Survival
For agents to succeed in this evolving market, a shift toward sustainable, long-term strategies is essential. This includes enhancing services for buyers and exploring non-traditional sales support for sellers.
Industry Behavior and Brokerage Operations
Large single-family residence (SFR) brokerage operations have historically relied on a continuous influx of newly licensed agents. However, this approach often results in high turnover rates as agents exhaust their initial contacts without building a solid client base.
In the pandemic years, the number of inexperienced agents increased. Yet, brokers frequently prioritize recruitment over effective training, which may hinder the development of new agents.
Confronting Economic Realities
As we approach 2024, firsttuesday anticipates a notable decline in sales agent licensing, driven by reduced activity in buying, leasing, and mortgage origination. The next wave of licensees is expected to follow the return of speculators and end-user homebuyers, potentially revitalizing the housing market by 2028.
In conclusion, the real estate industry faces an evolving landscape. As we navigate the upcoming years, the focus must shift to adapting to economic realities, refining agent training, and fostering a sustainable market for both agents and brokers.
Related Topic:
How To Market Luxury Real Estate
