Many of the industry’s big companies are about to report their third-quarter earnings. The reports will offer the first in-depth look at how firms coped with a rapidly cooling market.

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In 2021, the third quarter was almost a kind of celebration.

Redfin CEO Glenn Kelman said his company “had a fantastic quarter” while revealing a 128 percent year-over-year spike in revenue.

Anywhere “delivered excellent top and bottom lines this quarter,” CEO Ryan Schneider said of his company’s expectation-defying 80 percent jump in revenue.

“Looking further ahead, we are excited about our growth prospects in 2022 and beyond,” then RE/MAX CEO Adam Contos said of his company’s record-breaking revenue haul.

But a year later, “2022 and beyond” isn’t looking so hot.

Beginning early in the year, rising mortgage rates sapped up demand for loans and began putting pressure on home prices, which are now expected to fall nationwide in the near future. Those conditions have slowed the housing market way down and led to thousands of layoffs in the real estate industry. And industry leaders’ comments have recently tended toward dire rather than exuberant.

“From a sheer transaction drop,” Gary Keller recently said, for example, referring to 2022, “this is at least the second worst in terms of the speed at which it dropped.”

It’s against that backdrop that many of real estate’s largest companies are preparing to release their third-quarter earnings results. The third quarter covers July through September, which this year was a period during which the market in some areas was going from bad to worse.

As a result, this month’s earnings reports will offer the first deep look at how companies are coping with harder times. In other words, while every earnings season technically matters, this one matters more than perhaps any other in recent memory thanks to it coinciding with such big changes in the market. As Coldwell Banker’s M. Ryan Gorman recently alluded, today’s market is the kind that separates the wheat from the tares. Earnings reports hint at who might make it.

Already, two big companies have reported earnings: Anywhere, which reported revenue declines thanks to a “deteriorating market,” and Costar which actually saw both revenue and profit tick upward. But here’s what you need to know about the remaining reports:

Can iBuying survive a slower market?

One of the biggest questions going into this earnings report is what happens to the iBuyers in a market where homes aren’t appreciating quickly or at all. In earlier years when price growth was strong, companies such as Opendoor and Offerpad could buy houses, sit on them for a few weeks and theoretically sell them at a profit. But that’s not the case today, which raises questions about the viability of the model.

Significantly, analyst Mike DelPrete reported in September that Opendoor was selling homes at a loss for the first time. Such a turn of events is likely to weigh on the company’s financials and show up in the upcoming report. On top of that, all the big iBuyers have recently seen their share prices drop to all-time lows — suggesting investors are skeptical of the concept. In the case of Offerpad — which has been profitable for all of the last three quarters — share prices have dipped so low that the company could eventually face the threat of delisting from the stock market.

Key questions: 

  • Did any iBuyers manage to turn a profit in the third quarter?
  • What kind of inventory are the iBuyers holding on to right now?
  • How much cash do they have on hand to help weather hard times?
  • How many transactions are the iBuyers doing, and what are their average sales and purchase prices?

Reports to watch: 

Offerpad: Wednesday, Nov. 2

Opendoor: Thursday, Nov. 3

Redfin: Wednesday, Nov. 9

What’s happening to agent counts?

Rising agent counts have been a key part of the story of fast-rising newer brokerages, such as Compass and eXp Realty. Even an older company, such as Keller Williams publishes agent count numbers despite being private and thus not having an obligation to report earnings like a public company.

However, as Gorman pointed out during his recent conversation with Inman, cooling markets typically see the overall number of agents in real estate drop. That means there will be more competition for the remaining agents and more attention on who is actually picking up top talent, as well as high-producing teams.

Key questions: 

  • Who is losing the most agents and the most quickly?
  • Are any companies growing their agent count?
  • How do U.S. versus international agent counts look?
  • How many transactions are different companies’ agents averaging?
  • Is there a pattern? For example, are newer or older companies doing better at recruiting and retention?

Reports to watch: 

eXp World Holdings: Wednesday, Nov. 2

RE/MAX: Thursday, Nov. 3

Keller Williams: Wednesday, Nov. 3

Douglas Elliman: Friday, Nov. 4

Fathom Realty: Monday, Nov. 7

Compass: Thursday, Nov. 10

How bad is the mortgage situation?

Mortgage companies took the initial brunt of the housing slowdown thanks to rising interest rates. They were the first to enact major layoffs, and they’re still suffering now as rates have climbed above 7 percent. The situation has become sufficiently notable that just this week the Wall Street Journal did a deep dive into Rocket Companies — the largest mortgage lender in the U.S. — exploring how the company plunged “back to earth” recently.

It’s virtually a given that mortgage companies’ earnings will be down compared to the recent past. The question, though, will be how far down and what they’re doing in response.

Key questions: 

  • How much have revenue and profit fallen at mortgage companies?
  • Are any mortgage companies managing to turn a profit right now, and if so, how?
  • Have they articulated any sort of Plan B-type pivot to make up for falling loan demand?
  • Some companies have added mortgage products as an ancillary service to their other bread-and-butter offerings. How are such companies doing and is mortgage dragging them down?

Reports to watch: 

Zillow: Wednesday, Nov. 2

Rocket Companies: Thursday, Nov. 3

Keller Williams: Wednesday, Nov. 3

Redfin: Wednesday, Nov. 9

What’s happening to the tech companies?

This is kind of a catch-all category because real estate technology companies do a vast array of different things. Zillow is a tech company but so are WeWork and Vrbo parent, Expedia.

What’s clear, however, is that Wall Street investors lately have soured somewhat on both real estate and tech, meaning companies with a foot in both worlds have in certain cases been doubly dinged. Observers have also begun noting that the days of easy money for startups are apparently over, for now, meaning there is growing pressure on technology companies to turn a profit.

Despite being a catch-all, this category also may prove to be the most interesting. For example, Zillow used last year’s third-quarter earnings to announce the end of its iBuying program Zillow Offers. There probably won’t be any fireworks quite that big this year. But Zillow and others are huge companies and what they do has a massive impact on real estate.

Some companies, such as Redfin have also dipped their toes into multiple products. Redfin is a brokerage and an iBuyer and a mortgage lender. Earnings reports from such companies will offer hints at how diversification is working, which areas are strongest and how horizontal integration compares as a strategy to keeping a narrower focus.

Finally, some of the tech companies have been on the frontlines in the debate about what role real estate agents should play in the industry. So it’ll be worth watching for news about agent-focused services, such as Zillow’s Premier Agent.

Key questions: 

  • Does Zillow have any news about its post-iBuying pivot and Zillow 2.0 strategy?
  • What does web traffic to the portals look like amid a slowing market?
  • Which services are standouts — either for good or ill — at companies that have diversified?
  • What do any strategic moves from the tech space mean for real estate agents?

Reports to watch: 

Zillow: Wednesday, Nov. 2

Expedia: Thursday, Nov. 3

Opendoor: Thursday, Nov. 3

Redfin: Wednesday, Nov. 9

WeWork: Thursday, Nov. 10

How bad is the downturn?

One of the big questions in real estate right now is how bad things will get and how long the downturn might last. The numbers in the reports will offer hints on these topics. But also, the reports and subsequent investor calls always include commentary from top executives. That means this is a rare chance to hear folks like Rich Barton, Robert Reffkin, Glenn Kelman, Glenn Sanford, Eric Wu and many other top leaders directly address the state of the market.

Earnings reports often include a bit of company boosterism, but investor calls also involve executives taking questions from analysts — meaning the calls tend to produce off-the-cuff and occasionally colorful commentary.

Key questions: 

  • What are top executives saying about the downturn?
  • Do some leaders sound more upbeat or downtrodden than others?

Reports to watch: 

All of them

Email Jim Dalrymple II

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