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New York brokerage Douglas Elliman tallied a significant decline in revenue during the third quarter of 2022 as the luxury market struggled amid a shortage of new inventory, according to an earnings report released Thursday.
The brokerage reported consolidated revenues of $272.6 million during the third quarter, compared to $364.2 million during the same period of 2021. Its gross transaction value clocked in at $11 billion, compared to $13.4 billion over the same period last year.
The brokerage’s net income for the quarter was $12.8 million ($0.16 per diluted common share), a modest increase from the previous quarter when it recorded $10.2 million ($0.13 per diluted common share). It was down from the record highs set in 2021, however, when the firm reported net income of $78.7 million ($1.01 per diluted common share) during the third quarter of 2021.
The firm recorded a consolidated operating income of $17.3 million and a real estate brokerage segment operating income of $37.6 million compared to the $82.9 million for both consolidated operating income and brokerage segment operating income recorded in the third quarter of 2021.
The average home sale price per transaction hovered at $1.53 million, down modestly from $1.6 million in the previous quarter.
During an earnings call Friday morning, Douglas Elliman Chairman and Chief Executive Officer Howard Lorber said the luxury market that has long been the firm’s bread and butter is struggling amid a lack of listings, with owners unwilling to sell and lose the mortgage rate they previously locked in during the early days of the pandemic.
“The sudden increase in borrowing costs in 2022 has restrained potential supply, hampering the housing market as homeowners remain reluctant to part with a mortgage rate obtained from purchases over the past several years,” Lorber said. “As a result we have continued to see luxury listing inventory at lower levels.”
“We still see lots of buyers at that level, but there is very little inventory,” he added.
The challenging third quarter came after a strong first half of the year for the brokerage, which saw it mark its second highest quarterly revenue in the company’s history during the second quarter despite the ongoing downturn.
“After a record-setting first half of 2022, the third quarter was challenging for Douglas Elliman in an environment with limited listing inventory and significantly increased mortgage interest rates,” Lorber said in a statement. “Despite these challenges, we are optimistic that Douglas Elliman’s strong balance sheet, our global network of best-in-class agents and our luxury brand positions us to take advantage of opportunities as financial markets stabilize. We are confident our differentiated platform and approach will enable us to deliver continued growth over the long term.”
During the Friday call with investors, Lorber expressed confidence that the luxury sector would soon right itself as buyers and sellers adjusted to the high-rate environment.
“We believe that tight supply will gradually ease as time passes and consumers adjust to higher interest rates, and sellers, when forced to sell, will adjust prices accordingly,” he said.