Home prices soared to record levels in 2021 — and so did agent incomes.

Real estate sales agents typically earn their living based on a percentage of the sales price of each transaction closed. Thus, when sales prices increase, so do agent incomes.

Here in California, home prices surged 18%-23% higher during 2021, with real estate professionals reaping the benefits. Encouraged by the potential of an equally sizable annual pay increase, many outsiders have begun to view real estate as a profitable career option.

In fact, the most popular job-related search trend in 2021 related to how to become a real estate agent.

The largest gains in agent population during 2021 took place in southern states, where the cost of living is low and the barriers to homeownership are few. For example, Georgia, Texas and Florida lead the way with a +8%-10% annual change in agent population, according to the New York Times.

But the same cannot be said of California.

As of January 2022, there are 220,500 active agents in California, up from 214,700 a year earlier. This 5,800 or 2.7% annual increase in active agents is slightly misleading, as the total agent population — which includes both active and inactive licensees — actually declined from 308,200 at the start of 2021 to 304,800 as of January 2022.

Likewise, California’s individual broker population declined, from 106,900 in 2021 to 102,400 in 2022, according to the California Department of Real Estate (DRE). For perspective, California’s agent population has generally increased each year since 2014, while the broker population has gradually fallen since peaking in 2010.

California’s struggling agent population

It may seem contrary that California’s agent and broker population has fallen back in the face of rising home prices. But consider another factor that is holding back licensees — transactional volume.

Years of insufficient residential construction coupled with high buyer enthusiasm fueled by pandemic inertia and low interest rates has caused inventory to decline across California’s largest metros. As of January 2022, compared to a year earlier, inventory is:

  • 35% lower in San Jose;
  • 35% lower in Los Angeles;
  • 29% lower in San Diego;
  • 26% lower in San Francisco;
  • 20% lower in Bakersfield;
  • 9% lower in Riverside; and
  • 6% lower in Sacramento, according to Zillow.

With fewer listings to go around, competition for sales isn’t limited just to homebuyers — sales agents are forced to compete, too.

For perspective, the lower but more stable fees that characterize the real estate markets of southern states continue to attract more agents to a career in real estate. But the prospect of relying on a limited number of “big deals” to close each year to make a living is a less certain — and more stressful — way to make a living.

The high stakes housing market will continue until inventory returns to a healthy level. For that to occur, residential construction will need to increase.

In 2022, builders are contending with building material and labor shortages alongside rising interest rates, which constrains borrowing. Combined, these factors will continue to place downward pressure on new construction starts in 2022-2023.

The inventory crunch may experience some relief in 2022 following the expiration of COVID-era eviction protections, which end fully here in California in April 2022. Global economic and military turmoil along with rising interest rates will also reduce buyer and renter enthusiasm (and turnover) in the months to come. But the long-term solution for real estate agents’ transaction woes will be simply: more construction.

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Agent paychecks soar — but agent fee rates plunge in 2021