This article was shared here with permission from Mike DelPrete for Inman Intel, a data and research arm of Inman offering deep insights and market intelligence on the business of residential real estate and proptech. Subscribe today.

Compared to last year, new listings are up and existing-home sales are down — a tale of two metrics — but with a promising silver lining.

Why it matters: New-listing volumes are a leading indicator for existing-home sales, which typically lag by two to three months, meaning the current surge in new listings is a hopeful sign for the remainder of the year.

Data points: Compass has 35 percent more listings than the same time last year — a trend which has been steadily increasing since January — with about the same number of agents.

Nationally, new listings are up about 15 percent compared to last year, according to Redfin data (which measures all listings in a market, not just Redfin’s listings).

• New listings aren’t quite at the levels of 2021 and 2022, but are well off the lows of 2023, meaning inventory is building.

But new listings are not yet translating into sales, which is reported monthly by the National Association of Realtors.

• After a relatively steady start to the year, existing home sales in March were down 10 percent compared to 2023, and down 19 percent compared to the historical average.

For the first quarter of 2024, existing home sales were down 17 percent compared to the pre-pandemic historical average (2012–2019).

• At this rate, total transactions for 2024 would end up at 4.3 million, up 6 percent from last year.

What to watch: I think it has something to do with interest rates.

• But also keep an eye on days on market to make sure inventory isn’t just sitting on the market (sellers without buyers).

The bottom line: It’s a confusing time with mixed messages coming from the market, making it easy to spin whatever narrative you want (armageddon vs. a healthy recovery).

• There’s no simple answer to what’s going on, just data: new listings are up significantly and sales are lagging.
• 2024 will likely be another depressed year of activity, but the best leading indicator of future activity, new listings, is looking promising.

There is an inverse correlation between how likely something is to occur and how much attention it gets — a phenomenon a friend has dubbed the DelPrete Probability Paradox.

Why it matters: This leads to attention being focused on the highly exciting, yet least likely scenarios, which dilutes focus and clarity while creating noise and distraction.

• Getting informed and being entertained are two separate things; boring headlines don’t sell papers.

Real estate is rife with possibility — news headlines and conference agendas are packed with topics that exist in the realm of the possible and plausible, but not necessarily probable.

Probability revolves around the existence of data, facts, and evidence — the more we know, the more certain the predictions.

• The least likely events — the possible — generally exist in a reality light on facts and flush with speculation.
• Facts are important; they form a trajectory of likeliness — plotting them over time and triangulating data points can identify likely outcomes.

For example: Opendoor’s IPO prospectus presented a very plausible argument supporting its ability to attach adjacent services to a real estate transaction.

• The company asserted that because it had success attaching title and escrow services to its sales, it would be able to attach other adjacent services like home loans.
• The story made sense — to those outside of the industry — but in the end, it didn’t work and Opendoor shut down Home Loans. Plausible, yes, but not probable.

Inertia rules: Newton’s First Law states that an object in motion will stay in motion unless acted upon by an outside force — in other words, systems tend to remain constant.

• Consider the percentage of homeowners that use a real estate agent to sell their home: even after the introduction of Zillow, Opendoor, and billions of dollars in venture capital pushing alternative models, it remains at a 40-year high.

Speculation is running high with the recent NAR settlement; my thoughts were summed up in this Fortune article.

• “Right now, everyone is turning this ruling into what they want it to be,” said Mike DelPrete, who teaches courses on real estate technology at the University of Colorado Boulder.
• “Some people are saying not much is going to change. Others want the story to be that it’s a seismic shift for the industry.  The whole thing is being driven by fear and uncertainty.”

The bottom line: Don’t confuse news with entertainment — news is meant to inform, entertainment is meant to distract.

• Making smart decisions requires cutting through the noise and gathering evidence, pattern matching and distilling insights.
• But it’s easy to get distracted, which is the crux of the DelPrete Probability Paradox: the less likely something is to occur, the more attention it gets.

This article was shared here with permission from Mike DelPrete for Inman Intel, a data and research arm of Inman offering deep insights and market intelligence on the business of residential real estate and proptech. Subscribe today.

In 2023, the largest, publicly-listed real estate companies had another unprofitable year with over $1.1 billion in losses.

Why it matters: Profitability is an important metric — it’s a proxy for a healthy business model that has product market fit, is financially viable and can generate returns for shareholders.

Dig deeper: Net income (or loss) is the standard, GAAP-friendly, apples-to-apples method to report a company’s overall financial profitability (or lack thereof).

• Of all the public companies in the real estate ecosystem, eXp Realty was closest to profitability in 2023, while Compass and Opendoor had the largest losses.

Net margin is a company’s net loss proportional to its revenue — losing $100 million is different for a company with $1 billion in revenue compared to a company with $100 million in revenue.

• Net margin is an illuminating measure of a company’s business model; how effective is it at generating profits for shareholders? Is the company a cash generator or a cash incinerator?
• EXp once again comes out on top, but the outlier is Redfin, which, proportional to revenue, was significantly less profitable and less capital-efficient than its peers.

The Net income of the “biggest losers” is being dragged down by large stock-based compensation expenses (compensating staff with stock options and grants).

• In 2023, Zillow had $451 million in stock-based compensation expense, Compass $158 million and Opendoor $126 million.
• These equity awards are a non-cash expense, but they do have a cost: diluting shareholders.

With exponentially higher stock-based compensation expense than any other company, Zillow is the noteworthy outlier in the chart above.

• Without it, the company would be materially profitable (along with eXp Realty and Real).

Net loss per transaction is another method to highlight business model efficiency, similar to OpEx per transaction.

• The low-fee brokerages, with lower operating expenses, and Anywhere with its large franchise network, have the smallest net loss per transaction.
• Note: For Zillow, I’ve assumed 3 percent of 4 million transactions.

Throwing Opendoor into the mix highlights the inherent challenges of iBuying: comparatively, and in the current market, it’s a much less profitable business.

The bottom line: Profitability is not the same as cash flow; unprofitable businesses are not necessarily losing money or at risk of going bankrupt.

• But it is a valid measure to consider when evaluating the merits of a particular business model — eventually, a business needs to make money.
• For the time being, the most profitable — or least unprofitable — companies are traditional brokerages, especially cloud-based ones, while the disruptors and tech companies continue to struggle with sustained profitability.

Mike DelPrete is a strategic adviser and global expert in real estate tech, including Zavvie, an iBuyer offer aggregator. Connect with him on LinkedIn.

I recently wrote about learning from a new generation of brokerages, which includes the migration patterns of tens of thousands of agents across the industry.

Why it matters: Agents change brokerages for a variety of reasons — technology, compensation, support, brand — but it turns out one of the biggest factors may simply be that agents are attracted to new things.

• During 2023, agents continued to stream out of the big legacy brands for the lure of low-fee brokerage models, where agents can keep more of their commission.