Are Realtors Really Market Prophets?

The American housing market has been tumultuous since the onset of the pandemic. Through the soaring prices in 2020 and 2021, then the dramatic decline in sales over the course of 2022, economists, policy makers, and investors have been trying to predict movements in the market. Enter realtors, who often claim that they are uniquely attuned to trends in the real estate market.

But do realtors really anticipate such movements? To investigate this question, Revelio Labs looks at how changes in the market for realtors relate to changes in the housing market. As one would expect, home sales follow consumer sentiment closely. Realtors experience this sentiment firsthand by asking their current and prospective clients about how they are feeling. Perhaps they can predict home sales by predicting consumer sentiment. Though it may not be a leading indicator, consumer sentiment is highly correlated with home sales.

Yet the market for realtors appears to react to, not predict, changes in consumer sentiment and home sales. Demand for realtors, estimated by job postings for realtors tracked in Revelio Labs' HR database systems, tracks home sales with a significant lag, especially following the 2020–21 sales boom.

The growth in the number of realtors employed by real estate agencies also serves as a lagging indicator for the performance of the housing market. This lag was pronounced during the 2020–21 boom.

These results suggest that realtors and real estate companies pay attention to the conditions of the housing market and respond accordingly. But do realtors explicitly anticipate when the market is about to soar or tumble?

To investigate this, Revelio Labs tracks realtors’ business outlooks over time, and find a strong association between realtors’ feelings about their business and home sales. Interestingly, realtor sentiment led the 2020-21 boom, though it lagged both the boom of the late 2010s and the recent sales drop. While this points to some degree of foresight, the ability is far from consistent.

Key Takeaways:

• Our HR database systems help show that the labor market for realtors holds lagging indicators of developments in the housing market. Both growth in the number of realtors and job postings for realtors react with a lag to changes in home sales.
• Realtors’ business outlook leads home sales when they are increasing but lags home sales when they are decreasing.
• Realtors may need to invest in some crystal balls.