The number of Californians obtaining their real estate licenses is, as fully expected, tailing off from its Pandemic driven artificial high in 2021.

In the fourth quarter (Q4) of 2022, 5,700 new real estate agents and 970 new brokers received licenses from the California Department of Real Estate (DRE). In comparison to Q4 2021, newly licensed agents have declined by 35% and newly licensed brokers have declined by 21%.

Around 50% of new brokers were not sales agents who upgraded to broker, but attorneys and experienced individuals from other real estate related services who do not need to first become a licensed salesperson to obtain a broker license.

A total of 127,100 individual brokers and 310,700 agents held licenses issued by the DRE as of December 31, 2022. In comparison to Q4 2021, the total number of individual brokers has slipped by 1,500, while individual agents have declined by nearly 7,000.

Boomtime licensing gains during the pandemic were expected to peter off — starting in Q2 2022 — and will continue to as the volume of real estate transactions of all sorts further declines in 2023. These new licensees are facing a falloff in the need for their services since the volume of sales, leasing and mortgage originations are declining.

The stunning increase in sales prices during the pandemic, fully reported by the various media, swayed prospective agents to become licensed, significantly bumping up growth in the sales agent population from 2020 into 2021.

To remain productive and earn fees in a recession, an agent needs to shift their services to adjust to changes in the financial dynamics of the real estate market — shifting from most beneficial for sellers to most beneficial for buyers.  Also, to remain competitive, agents need to consider a professional upgrade by becoming a broker to attract the better clients as we pivot into the 2023 recession.

The pace of active agents becoming licensed as a broker will pick up as we move deeper into the recession, having remained low throughout the past decade’s business cycle. In contrast, agent licensing will fall off in a sympathetic reaction to the decrease in real estate sales, leasing and mortgage volume — and broker fees, which took root in Q2 2022.

The number of licensed agents will continue to decline in 2023-2025, now that the property market is left without supplemental government support and proper home pricing. Housing, in particular, will be hit hard with the full removal of government pandemic period monetary policy for extremely low consumer mortgage rates and abundant fiscal stimulus of cash to individuals and businesses.

Further, all property values will be adversely affected in the same manner for the same reasons this time around the business cycle.

Updated January 30, 2023. Original copy released November 2008.

An updated chart on newly licensed agents and brokers declining.

Chart update 01/30/23

Q4 2022Q4 2021Q4 2020
Agent Licenses Issued
Broker Licenses Issued

Aggressive adjustments in the broker and sales agent population

Compare the number of newly-licensed Department of Real Estate (DRE) brokers to the number of newly-licensed DRE sales agents and you find that for every five new agents there is approximately one new broker. New brokers come from the ranks of current sales agents and other real estate related professionals.

Importantly, between 10% and 25% of newly-licensed sales agents go on to become brokers, varying depending on when during the real estate cycle they become licensed. These licensees are most likely to become brokers within four years after first getting their sales agent license. Those who are not initially active sales agents can still qualify to become brokers by virtue of education or profession.  

Read more about the DRE’s requirements to apply for a broker license here: Requirements to Apply for a Real Estate Broker License. Find out how licensing courses work here: DRE approved Broker Licensing Courses.

The current ratio of total sales agents to brokers of 2.5:1 is a remnant of the abnormally high number of sales agents flooding into the profession in the 2000s back to historic norms. However, since Q2 2014, optimism due to rising prices and low mortgage rates has boosted sales agent licensing to the level experienced just before the Millennium Boom jump of the mid-2000s. Through most of the mid-2000s, until the legislated real estate licensee crash in October 2007, a ratio of five new sales agents to every one new broker became the boom-time standard, which we are once again approaching.

This ratio however was unsustainable, fueled by an artificially high volume of home sales, hyper-inflated home prices and rampant speculation by flippers who sought to take advantage of the momentum. Now, in the absence of the market distortions of the housing boom, the real estate profession is moving toward a more natural balance between the quantity of brokers and their sales agents. Speculation peaked in 2013 and continues to subside.

During the 2000s, the timing of the rise and decline in the number of new brokers followed one year behind the rises and declines in the number of new sales agents, as is illustrated by the above chart. Based on current licensing numbers, we are able to safely predict that the issuance of new broker and sales agent licenses will remain low until the years following the next recession, arriving by mid-2020.

Broker licensing has historically been far more stable than sales agent licensing, but it can still be forecasted by an appraisal of the number of new sales agent licenses issued during the prior four years.

Licensing forecasts

How many sales agents will arrive as new licensees in 2020? The answer to this question is in the monthly data for the recent influx of new sales agents, which is similar to the line of entry for new sales agents during the early 1990s. Between late 2007 and mid-2012, the number of new sales agents remained steady with a slight general decline, from 1,100 to about 1,000 monthly. Then, licensing spiked in the first half of 2013 (due primarily to excitement caused by the speculator frenzy) and again in Q2 2014 (due to the rapid price increases experience in 2013 through 2014). This was yet another artificial stimulus, as occurred prior to October 2007, when the numbers of sales agents receiving licenses were artificially boosted by:

  • boom-time momentum which peaked in 2006; and
  • altered licensing requirements effective October 1, 2007, when the state severely tightened requirements for sales agent licensing, instantly causing the number of licenses issued to drop 80% to the more sustainable current level.

In Q4 2014, sales agent licensing fell back slightly, but regained momentum going into 2015 and has continued to climb to today’s number of 5,800 new licenses issued quarterly. Expect sales agent licensing to taper off in 2020, as sales volume and, in turn, agent fees decline.

Meanwhile, new broker licensing numbers hit their bottom at the end of 2017 and will remain stable as the entire licensee population corrects for the current surplus in licensees. Both broker and sales agent licensing numbers will remain flat to down through 2019 and into 2020, not to significantly rise again until the housing market starts to show signs of real recovery, first through an increase in sales volume, then an increase in prices one year further on.

Sales agent Population Movement

Roughly 60% of new sales agents who were issued licenses from 2005 to 2007 have left the real estate profession by letting their licenses expire at the end of their first four-year license period. Further, one-third of all sales agents who renewed their licenses are not employed by a broker and thus not involved as sales agents in real estate transactions.

Accordingly, roughly one-third of the 99,700 individuals who received original sales agent licenses in the two years prior to October 2007 will be actively participating as sales agents in real estate transactions in 2020, while the California real estate market continues to stabilize for an eventual upturn in sales volume around 2021. Of the 33,250 licensees remaining after entering in 2006 and 2007, around 6,500 have already become brokers.

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However, the new sales agents who entered after 2007 are of a different mindset and possess different talents than the “hit-and-run” types who entered between 2003 and 2007. This incoming batch is more dedicated and thus more likely to plan ahead for long-term market rises and falls.

Their actions will cause fewer future entrants to drop out after their first four years, a human resources problem the real estate industry has never managed to control. Many will be from families that own investment property or have brokerage backgrounds, and they will enter for far better reasons, and with much better likelihood of success, than those who merely hope to get rich quick.

Sales agents who have upgraded to broker status, presently around 4,600 annually (and a whopping 7,700 in 2021), have already found their sea legs in the real estate industry. Thus, most of them will remain actively employed by, or in association with, other brokers during the continuing bumpy plateau recovery.

Beyond 2021

Recent trends indicate 2021’s boost is due to two, fleeting market factors:

  • first, the high number of initial real estate licenses issued in 2021 was due first to a delay in the issuance of new licenses at the outset of the pandemic, as state exams were suspended; and
  • second, recent rapid home price price growth has caught the attention of many individuals who have quit their jobs during the “Great Resignation” of 2020-2021, encouraging them to try their hands as sales agents.

However, sufficient number of active sales agents is currently available to meet the needs of California’s homebuying population, therefore growth has no need to rise beyond the current rate. Considering the ongoing inventory shortage, today’s new agents will compete with more seasoned agents for a shrunken supply of listings.

Thus, new issuance of real estate agent licenses is expected to fall back going into 2023.

first tuesday forecasts licensing volume — that is, the total number of real estate licensees holding either a DRE-issued sales agent or broker license — will decline in 2023, and begin to rise gradually beginning in 2025.

In the more immediate future, inactive real estate licensees (licensed sales agents not currently employed by a broker, and licensed brokers who elect not to use their licenses) will gradually begin to return to active status as sales volume stabilizes and sales agents begin to improve their income flows.

Economic recoveries

At the end of the long, bumpy road following Great Recession of 2008, 2018 was the “go-ahead year” for the California economy. The state reached pre-recession employment levels in mid-2014 exceeding the previous historic high of 15,348,200 jobs experienced in December of 2007. Then, at the beginning of 2020, 2.8 million jobs were lost in the span of just four months. These jobs continue to gradually return, with 690,000 still to go as of January 2022.

Employment growth remains strong at the start of 2022. As a result, the demand for housing among “employed homebuyers” began rising with the increasing numbers, yet not to reach the sales volume of the heights of mid-2005. However, demand is still too great to be met by existing housing. Thus, builders need to increase their construction activity to meet the demand.

Construction and home sales will be most intense in California’s urban cores, where the population will increasingly concentrate itself. Indeed, unless cities relax their land use restrictions – density and height – and permit construction sufficient to keep pace with the increasing and shifting demand, home prices will rise faster than the rate of consumer inflation, at speeds unsustainable in the long term. Another period of boom and bust is not unlikely.

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Despite a recovering jobs market, home sales volume won’t begin to pick up in earnest until after inventory returns and the economy stabilizes. Along with increased residential construction, an ongoing increase in the popularity of rental housing will take the pressure off the demand for new single family residential (SFR) housing later this decade. And until buyer demand for new housing is reflected by annual increases in construction starts, real estate licensing and renewals will have no urgency.

These end-of-the-decade shifts can be dramatic, and easily observed by real estate professionals. After all, the increase in licensees will only reflect what will, by that point, already be obvious: increased home sales volume and the ensuing increase in home sales prices roughly nine months later, when pricing will finally begin to rise more quickly than the rate of consumer inflation.

Once the number of annual home sales will begin to rise at a steady and sustainable rate, sales agent licensing volume, like home pricing, will rise in response.