Q1 2022 Realogy Holdings Corp Earnings Call
Okay.
Good morning, and welcome to the Realogy Holdings Corp, first quarter 2022 earnings Conference call via webcast. Today's call is being recorded and a written transcript will be made available.
That's your information section of the company's website tomorrow.
A webcast replay will also be made available on the company's website.
At this time I'd like to turn the conference over to Realogy Senior Vice President Alicia Swift. Please go ahead Alicia.
Thank you Chris Good morning, and welcome to <unk> first quarter 2022 earnings conference call on the call with me today are really G CEO and President Ryan Schneider, and Chief Financial Officer, Charlotte Simonelli.
As shown on slide three of the presentation. The company will be making statements about its future results and other forward looking statements during this call.
These statements are based on the current expectations and the current economic environment forward looking statements and projections are inherently subject to significant economic competitive and other uncertainties and contingencies, many of which are beyond the control of management, including among others constrained inventory levels rising inflation.
And mortgage rates and uncertainties related to the continued strength of the housing market and the ongoing Covid crisis.
Actual results may differ materially from those expressed or implied in the forward looking statements for those who listen to the rebroadcast of this presentation. We remind you that the remarks made herein are as of today April 28, and have not been updated subsequent to the initial earnings call.
Important assumptions and factors that could cause actual results to differ materially from those in the forward looking statements.
Are specified in our earnings release issued today as well as in our annual and quarterly SEC filings.
Also certain non-GAAP financial measures will be discussed on this call and per SEC rule important information regarding these non-GAAP financial measures is included in our earnings press release and slides.
Last the industry data reference during today's call is based on <unk>. Most recent public estimates, which are now subject to review and revisit factors that may impact the comparability of our home sales statistics dinar are outlined in our annual and quarterly reports filed with the SEC.
Now I will turn the call over to our CEO and President Ryan Schneider.
Good morning, everyone I'm incredibly excited to be with you today to discuss our strong first quarter 2022 results.
We also continued to strategically transform our business as we move real estate to what's next.
When we last spoke in February I shared <unk> 2021 progress as we completed the first chapter of our transformation highlighted by profitable organic growth substantial market share gains.
<unk> balance sheet with much lower net leverage and proven cost discipline, all driven by great talent and our increasing technology leadership.
Q1 of 2020 to continue that success.
Bleeding the unseasonably high 2021, we delivered the best first quarter top and bottom line results in the Companys history.
Revenue was $1 6 billion in operating EBITDA was 69 million. The ladder has more than doubled recent Q1 results like $32 million in 2020 and $34 million in 2018.
We grew our luxury and premium heavy owned brokerage business, 10% year over year substantially outperforming the industry. We saw some really powerful geographic trends with standout strength in New York City in Florida.
Our franchise business volume was up 1% year over year, and overall rheology delivered 4% year over year volume growth in the quarter in line with the industry and our expectations, including higher prices with a bit fewer units.
Our core business drivers continue to perform very well, we increased brokerage agents or 6% year over year, the seventh consecutive quarter of sequential growth.
We achieved incredibly high brokerage agent retention as our very strong product technology and brand value proposition increasingly attract and retain agents at tremendous scale.
And our franchise business expanded we're especially excited by the ongoing growth of our corporate and franchise brands.
We fortified our balance sheet by retiring $1 1 billion of our highest coupon notes, which will lower our annual interest expense by over $40 million, we printed a three times net leverage ratio. The best Q1 results in company history. This result is right in line with our target and what we expected given the return to seasonality.
Now strategically we closed our underwriting joint venture with Centerbridge partners in March we received our $210 million purchase price for 70% of the business and are excited for the future upside of this growth venture given our continued ownership stake.
On another strategic topic, we are really focused on are reassured joint venture remember, we remain skeptical of the pure eye buying concept, but we are compelled by the power of helping consumers buy and sell their homes in an easier way.
We continue to invest in reassure expanding our reassure byproduct to seven cities in the quarter and a real sure cell product is now in 25 cities. We're pleased by what we're learning from both our direct to consumer and our agent marketing and believe we are building a special thing in this part of the market.
Now the biggest challenge we saw in Q1 was in our mortgage joint venture, where we lost $8 million in the quarter.
Lapping a much higher mark to market from last year, combined with very tough rate and margin trends that emerged in Q1 negatively affected both Q1 results and our mortgage outlook for the full year 2022.
But overall, we're really upbeat about the Q1 results, we delivered especially versus history, and we love the momentum we continue to generate.
Looking ahead for 2022, we now expect to deliver operating EBITDA in the $750 to $800 million range with the change driven primarily by the challenges, we and others are seeing in the mortgage business. Since we set our guidance, we will remain proactive on cost management, including the execution of the full year call.
Cost savings plan, we outlined for you last quarter.
And with increasing uncertainty about housing in the near term, we always try to share with you what we're seeing so on the positive side, we continue to see very strong demand.
Over 50% of our listings are selling within two weeks.
Multiple offers for home and sales price above list price measures are still meaningfully above historical norms and our portfolio.
In the premium and luxury parts of our portfolio are showing the most strength as you can see in our Q1 brokerage loads.
And our number of listings on $500000 enough properties is actually up versus 2021.
If we had more housing supply, we could definitely solid across all price points.
On the more challenging side, the combination of limited supply and rising rates is clearly hurting the lower end of the market, especially the first time homebuyer buyer or number of listings on properties below 300000 in our franchise business and below 400000 in our owned brokerage business are down versus 2021.
And to give you a sense of our latest data through about the third week of April are closed transaction volume looks in line with our current forecast and our open volume is a bit below our current forecast for the month.
So our volume guidance for 2022 is currently unchanged at mid single digits, but we're watching this closely and we'll keep you updated on these calls on what we're seeing and remember the rough metric that about one percentage point of volume is worth about $15 million of operating EBITDA in our business, so and while the near term volatility in the housing market is tough.
To predict we remain convinced the medium term outlook for housing, especially over the course of this decade anchored and positive demographics and social trends remains Brian . So I'll now turn the call over to Charlotte to discuss Q1 in more detail.
Thank you Ryan good morning, everyone.
<unk> once again delivered another strong quarter of results as Ryan mentioned, our Q1 revenue was the best on record.
And our Q1 operating EBITDA was second only to the outstanding results. We delivered in Q1 last year and more than double that of 2020.
This consistency of delivery strong financial discipline and continued momentum reflects the strength of our underlying business.
And we are leveraging the strong foundation to execute on the offense as we embark on the next phase of our company's transformation.
Now, let's get into the Q1 financial highlights.
Q1 revenue was $1 6 billion, an increase of $88 million or 6% versus prior year, our best ever due predominantly to 4% transaction volume growth in line with our expectations.
This was led by outsized performance in brokerage with transaction volume growth up 10% year over year and our strong Q1 results were on top of an already strong Q1, 'twenty, one with volume up 44% year over year.
Q1, operating EBITDA was $69 million down $93 million versus prior year due to lower mortgage JV earnings higher operating expenses and lower title agency earnings.
Even with the mortgage headwind Q1, EBITDA of $69 million was much stronger than Q1 2020 of $32 million Q1, 2019 of negative $4 million in Q1 2018 of $34 million.
In the quarter, we realized $11 million in cost savings and are on track to deliver approximately 70 million of savings for the full year.
For this program, we are focused on driving continued efficiency and agility driven by automation systems integration and other personnel related efficiencies.
Q1 interest expense improved by $20 million year over year due to higher mark to market gains on interest rate swaps and lower interest expense due to our Q1 debt reduction and refinancing.
And we closed the 70% sale of our underwriter business to Centerbridge on March 29, and remained very excited about the growth prospects of this JV.
The transaction drove a $131 million gain on sale recognized in Q1.
Post close our retained ownership is reported in equity earnings from unconsolidated businesses, along with our mortgage JV.
As a reminder, the operating EBITDA impact is worth about $40 million versus prior year and will impact year over year comparisons to revenue and other P&L metrics.
Now I will briefly highlight our business unit results.
Realogy franchise group, which includes lease and relocation delivered one of the best first quarters on record with Q1 revenue up $267 million, an increase of $13 million versus prior year and net royalty per side of $413 was an increase of $31 versus.
Prior year.
Operating EBITDA of $138 million was largely flat for the high of Q1 2021.
Realogy brokerage group delivered its strongest top line quarter with Q1 revenue of $1 3 billion up $93 million versus prior year.
Transaction volume growth of 10% was driven by strength in Sotheby's International Realty and Corcoran.
Operating EBITDA was negative 40 million a decline of $35 million versus prior year, largely due to expense timing higher commission cost and the return to more normal seasonality in our P&L.
RBG generated operating EBITDA of $46 million before the transfer of intercompany royalties and marketing fees paid to our franchise business.
We grew our owned brokerage agent base, 6% year over year with Q1, our seventh consecutive quarter of sequential agent growth and continue to have the highest agent retention on record for RPG.
Commission splits increased 254 basis points, driven predominantly by strong volume growth.
Is mix recruiting and retention we.
We liked the agent investments, we are making to drive profitable growth.
We expect some of these trends to continue which will put further upward pressure on splits versus what I had shared with you last quarter and are reflected in our updated guidance.
Realogy title group Q1 revenue was $190 million, a decline of $11 million year over year.
The revenue decline was driven by three less days from our underwriter business due to the timing of the sale.
Lower purchase and refinance volumes coming off the unseasonable highs of 2021 were offset by favorable purchase unit fees.
Operating EBITDA was negative 3 million a decline of $64 million year over year, driven predominantly by lapping exceptionally strong DRA JV earnings in the prior year.
In Q1, 2021, TRA benefited from sizable mark to market adjustments higher gain on sale margins and high refinance volumes.
In Q1, this year the industry saw higher mortgage rates and lower purchase and refinance volumes, which prompted a dramatic increase in mortgage competition driving lenders to compress margin.
We closed Q1 2022 with a very strong balance sheet, and we will continue to execute against our disciplined approach to capital allocation.
We ended Q1 with our senior secured leverage ratio of zero times, and a net debt leverage ratio of three times and we will continue to target of three times net leverage ratio through cycle moving forward.
As a result of january's successful $1 billion, 525% notes offering we reduced gross debt by $100 million and redeemed $1 $1 billion of high coupon notes.
We reduced annualized interest expense by over $40 million and reduced our fixed rate cost of capital to four 6% from nearly 8% just a year earlier.
Cash on hand at the end of Q1 was $306 million.
This is after taking into consideration $152 million of regulatory cash that was sold with the underwriter business and also includes a $100 million of debt reduction and associated fees to retire our higher coupon debt.
Free cash flow was a use of $275 million a typical seasonal outflow for the business.
Finally, our capital allocation position remains unchanged, we remain committed to repaying the $407 million of.
A 2023 notes on or before their maturity.
Our highest capital allocation priority is investing for profitable growth.
This includes investing more in the organic growth that has helped us grow share.
And we continue to see opportunities for strategic M&A in our core business we.
We also see opportunities for M&A and investments in adjacent businesses and in technology to further accelerate our transformation.
Finally, excess free cash flow beyond what we think are good investments can be returned to shareholders with our board authorized stock repurchase program.
We continue to execute strategically and employ well disciplined financial strategies and are excited by our future path to growth, which we will cover in more depth during investor day on May 12.
<unk> is leading the market and growing share with a strong core business additional growth vectors like real sure and other JV.
First class brand talent and technology, we are at a very exciting time in our journey and we believe we are well positioned to further accelerate growth and shareholder value.
I will now turn the call back to Ryan.
Thank you Charlotte looking ahead I am most excited about where our business is going in the upcoming years, which we will share during our May 12, Investor day to give you a preview we plan to build on the attractive business that we have today and articulate new strategic opportunities for Realogy with the consumer to help transform home buying and home selling.
We believe these opportunities will be great for consumers and agents anywhere in the transaction journey and will be economically attractive for Realogy will help future proof the company and will even be part of moving rheology to a different competitive set our new CFO , Melissa Mcsherry, who joined US in February from Visa will also does.
Scribe this transformation, including product and technology innovation proof points, we are already delivering and Charlotte will share our 2026 financial targets, including a new growth opportunity sizing and what it means for our balance sheet and capital allocation. Finally, I wanted to give you more exposure to our great talent is an important component of.
Our Investor day, and we're really proud of the recent recognition is one of Lincoln's top 50 companies for talent in the U S for the second year in a row. So at my excitement about what's ahead for US we will now take your questions.
At this time I would just like to remind everyone. If you would like to ask a question. Please press Star then one on your telephone keypad.
Our first question is from Ryan <unk> with Zelman and Associates. Your line is open.
Hey, good morning, Thank you for taking the question.
So Ryan the 'twenty two guidance change you called out the impact of higher rates and in particular the impact on the mortgage JV and I think Charlotte you also mentioned higher splits are a component too. So I guess reading between the lines do those comments generally imply that the embedded outlook for volume at the brokerage and franchise has not.
<unk> much since last quarter, even even with higher rates and it's more so just the again the mortgage and split dynamic. So maybe if you can can start with connecting those dots and maybe just give us a general.
Update on on kind of how youre thinking about the resale market and transaction volume.
Through the year and ultimately embedded in that guidance.
Thank you for the question Ryan look it's more than implied to be blunt I did literally say our volume guidance is currently unchanged at mid single digit growth.
As we look to what happened in the first quarter, what's happening in April .
Our mortgage business and the whole mortgage industry took a pretty tough head.
The lion's share of that $50 million kind of shift in the guidance is mortgage.
It does incorporate a few other things around the margin, but we.
We've kept the volume guidance, where it is really given the frankly quite strong demand that we're seeing out there in the market, especially in the.
Kind of 500000 and up area, which is where our business does kind of skew.
But theres a lot of uncertainty, but I think the headlines are probably more negative than the data is out there and so we tried to give you. The positives we were seeing on the market volume side as well as a couple of places where there are some negatives and we worry about it but for now we're sticking with the kind of mid single digits with what we delivered in Q1.
It's what April is looking pretty close to or add on volume in terms of closed volume and obviously, we'll see where it's going from here but.
The rate and margin dynamics in mortgage took a really big headed our mortgage business in the quarter as we saw with the $8 million loss in.
Again that is the majority of the reason that we've changed the guidance is what has happened to our mortgage business.
Got it thank you very much and Charlotte I guess on the cost structure.
If we fast forward beyond 'twenty, two and let's just say if 2023 is a year where for the industry. There is lower transaction volume.
Can you talk about the levers or how you think about the levers that can be pulled to try to limit margin or the margin impact if let's say for the industry and let's say for you guys. If revenue in the brokerage segment.
And even the franchise segment is down with those costs are expense categories.
Similar to ones Youre already focused on with the cost savings or are there other categories.
A closer look at it if it turns out that the market does start to.
Slow more materially next year.
Okay. Thanks for the question. So we're excited we're actually going to share more about this on May 12 at our Investor day too.
Really two streams like the stuff that we're doing now theres definitely a lot more we can do on the efficiency front and we'll share more about that on May 12. So I think we have years ahead of us where we have still additional cost savings that we can go get through efficiencies automation.
More systems integration things like that.
But the housing market is a separate thing and I think we showed you during COVID-19 depending on how dramatic there are movements in the housing market. There are other things we can do a a more temporary nature like calling back travel and entertainment meetings and conferences, whatever theres more discretionary spend that we would attack if there was.
Something dire going on in the housing market. So I see it as really two streams and they are both assessable to us and we're full steam ahead on what we consider the more transformational ones that will set us up for future success ongoing but the discretionary ones are always available to us to depending on dramatic swings in housing and Ryan.
We have a pretty good proof point on that in terms of 2020, and what we did on a lot of the discretionary stuff there at the start of Covid and so we.
And we can talk more about that in 10 days, but.
Yes.
A proof point.
We've actually delivered on what you are asking in the past.
Yeah, absolutely okay. Thank you very much guys I appreciate it.
Thank you Ryan.
Our next question is from Anthony <unk> with Jpmorgan. Your line is open.
Alright, Thank you alright, good morning.
I guess first couple for Charlotte I understand the tough comps in <unk> that you laid out but can you maybe help us with a bit more as we try to roll into the second quarter and anything to think about as it relates to.
Whether it's the mortgage JV or shale.
Share of underwriting try to just make sure we clean up numbers for <unk>.
Yes, so I'll start at the top of the P&L with revenue. So we are lapping 85, 5% volume growth last year and the industry was at like 53%. So we have a very very strong volume quarter that we're lapping.
So keep that in mind and Youre right. The sale of the underwriter has a material impact on our revenues in the title business. So I think we've laid out the split between sort of title agency and underwriter pretty clearly, but I think that's definitely going to impact revenue.
And on the mortgage side, we had this outsized mark to market adjustment, which was much more sizable in Q1 than it was in Q2, it will still be an impact but the impact is probably more driven by lower gain on sale margins. This year as it relates to the competition that's going on in mortgage because of the lower volumes.
So I think mortgage definitely will continue to be a struggle for us, but it's less about the prior year comp, we definitely need to strip out the underwriter both at revenue and.
EBITDA and then on volume really that that 80, just don't forget about that 86% volume growth.
The thing that impacted us two in the first quarter that won't be quite as part of an impact is operating expenses. So the operating expenses were in.
Intentionally higher in the first quarter as we caught up a bunch on sort of the travel and meetings and agent facing things that we haven't done.
Q1 of last year, so while it was a severe impact in Q1, it will definitely be less of an impact.
So so on the underwriter don't forget to just add back and sort of are less than one third share of that but.
Those are the biggest drivers I would say and if theres anything else you need just let us know.
Okay. Thanks, and then my mother.
My question was going to be around expenses, and you kind of touched on that but as we think about that.
Rest of the year you had mentioned.
The higher Opex and <unk>.
We look at that number.
Is that higher just.
Than it normally would be seasonally or is it you think it actually opex will be lower in <unk> than it was in Warren in Q.
So how do I think about it is let's start with the cost savings, we had $11 million in the first quarter I would expect the rest of the year. They would build as we go. So you could expect sort of a similar amount in Q2, and then I'll probably improve as we get into Q3 and Q4.
The 35 ish million dollars higher Opex in Q1 was driven by those predominantly by those things I was referring to like catch up expenses there were some one offs.
So I think that you should assume that that's huge uptick versus prior year would be much much much smaller than it was so you could sort of back off like call, it 25% or $30 million worth in the second quarter.
Of that increase year over year.
Got it okay. Thanks for that.
And then just maybe a couple for Ryan.
You'd mentioned last quarter. Your objective this year of gaining market share and I think the 4% system volume.
It was pretty close the door I think in the in the first quarter, so seem consistent but I guess just more specifically when you say gaining market share.
Are you looking at to measure that because the agent count is up 6%, but I don't know what nor agent count was so I'm just trying to gauge like how are you measuring that.
Yes, you've already got it Tony we look at total volume.
Let me just total volume and we do use the nor volume is kind of as a core metric. There. So we kind of held share in the first quarter, though our owned brokerage business, where we make kind of higher unit higher money per unit.
It kind of was more than double nor in terms of growth. So we felt really good about that.
But that's kind of the metric that we that we use we're excited about our business drivers, we do have a little bit of inorganic growth happening likely this year as we the Charlotte talked about strategically.
But.
We absolutely still have that is our objective and.
We'll measure it against that public number.
So you'll be able to see it and obviously, we will talk about it and to that point, Tony just remember too like we were significantly ahead of the <unk> last year in Q1, and Q2 like I just mentioned.
The latest full year in our forecast as I think minus one or something and we're still sort of in the mid single digits. So you may not see it every quarter.
But.
It sort of evens out in the wash based on sort of part of the prior year comparisons.
Okay I understand and then last question there have been some headlines in the last week and even your filing around some of the lawsuits in the industry, which seem to be geared toward.
Charlotte commissions.
How much you can really say about the lawsuit, but just bigger picture can you comment on just.
How youre thinking about if something does change with regards to perhaps on bundling commissions.
How you would react to what the plan would be for Realogy or what you think the implications on the industry.
Yeah, well look as you kind of said it was real.
There's not a lot of comments that I can do on pending litigation.
We believe the lawsuits, obviously don't have merit and we're going to defend them vigorously.
To your question I think you should know we take them seriously and we've got an experienced both executive and legal team on these kind of big litigation matter both in this industry and in other industries.
And you know what.
I would want you to know I think we're doing all of the strategic and legal things that our shareholders would want us to but at the end of the day, we believe that on a mirror, we're going to defend them vigorously I really just I'm not going to be able to comment.
Much on pending litigation.
Okay. Thank you.
Thank you Tony.
Our next question is from John Campbell with Stephens. Your line is open.
Hey, guys good morning.
Hi, John .
I think you guys have probably given us enough puzzle pieces kind of put this together, but I'm, hoping you guys might be able shortcut. This after stripping out the title underwriter earnings what's the underlying EBITDA margin from our title agency business.
Yeah.
I don't want to misquote that I don't have that right at my fingertips, but we'll follow up we are now we have calls later to follow up with you on that I don't want to misquote. It. So I'll give it to you when we're at our later call. Okay before its a 40 60 split though.
Before like if you strip out the <unk> piece, it's a 40 60 split.
Okay, Great and then I finally, coldwell banker Bain acquisition can you guys talk to just the expected impact to volumes for you guys and whether that's kind of a one off opportunistic deal or if that's a sign of kind of the growing appetite for M&A. It sounds like you guys kind of hinted at that but just curious about your thoughts.
Yes.
Well, we're glad to have done the coldwell banker being up in the Pacific Northwest JV, So one geography, where.
We don't have if you've got if I step back John you know our owned brokerage business skews luxury and premium right. We're in about 50 geographies.
Average price point in the Coldwell banker side is like 560000 average price point in Sotheby's and Corker is like a $1 million plus right and the business is kind of architected to be in some of the best geographies wistful that luxury and kind of skew, but also with high growth and when you look at our map Theres really.
One place, where we actually don't have a stroke.
Our presence.
Kind of a luxury premium kind of owned brokerage business that is right up there in the Pacific Northwest and so we think things are good opportunity to really kind of build up strategic gap in our portfolio. It is a it was an existing franchisee.
And so there is sort of the volume change in the near term is just kind of swapping from franchise to brokerage, but obviously, we make a lot more money every unit on the brokerage side.
And then we're excited about both the growth potential under our leadership.
And kind of the market growth potential so kind of not having something up in the Seattle area kind of stuck out when you look at kind of our geographic footprint and this was a really nice.
Sure.
Market, one of the market, leading company or ways to fill that and so we did go ahead and do that here. This month, we can give you more financial detail.
And next quarter's call, but that was in April .
And we're glad to have done it and hopefully consistent with kind of the luxury premium.
<unk> that we have and again, that's the place we're actually still seeing a huge amount of strength in the market as demand is way outweigh in supply.
And so we're really happy to have been in all of their agents and our employees are part of the company.
Okay, that's great to hear and then Brian if I could squeeze in one more you talked about April .
April closings kind of holding the line on the low single digit growth.
Do you have the exact sort of the details around just the open orders of a listing do you seen thus far in April .
I have I have the exact and I frankly, without giving you the exact which I'm not going to do.
The listings being up and 500000 or up includes April the listings being down at the lower end includes April and then as I said the open volume for April it's a bit below our current forecast for the month and then the closed stuff is kind of right on our current forecast.
Okay, great. Thank you guys.
Yes.
Our next question is from Matthew Bouley with Barclays. Your line is open.
Hey, good morning, everyone. Thank you for taking the questions. So on the mortgage JV.
Realizing there's a lot of moving pieces around competition in that world and maybe the speed of change in interest rates makes a difference here too and again I know the business is early in its scale up but just curious for a little handholding on that at today's scale is there kind of a framework for.
What what kind of mortgage rate drives I don't know call. It breakeven profitability and then as you scale. This up over the years, where can you sort of take that that breakeven interest rate if that makes sense. Thank you. Yes. So it's a couple of different things you got to think about.
This is <unk>, so the speed of which the mortgage rate change definitely had an impact on competition <unk> seen this for decades.
What happens in the industry.
And there is an acute period of a couple of months 234, where everyone sort of gives on margin and then eventually it sort of evens itself out. So in some cases you just can't look at one quarter you have got its something thats going to flow throughout the quarter, but on top of what's going on with the gain on sale margins and lapping these big mark to market adjustments.
We're still making conscious choices to invest in this business to grow that's a choice, we're making we don't have to do that but we're still recruiting loan officers.
Still expenses that we have that are discretionary so even in today's environment.
We could be making different choices and sort of breaking even or making a little more money than we're making now that this is more about the bigger picture for us and we love the integration of this business to ours. So we're willing to take a little bit of short term pain for the long term. So I think we already have the tools to be able to do that we're just choosing to invest.
In this business for growth at this time.
And the way you have to think about it too is it's like purchase versus refi and refi is just gravy. When you get it there are periods of time over history, where that just going to be sort of an additional volume benefit, but you can't count on that for the long term. So you've got a plan for what you think your purchase volume is going to be and that's really why we're making these investments for the future to kind of grow share.
Sure.
Got it okay. That's very helpful. Thank you for that Charlotte.
And then on the commission split commentary apologies, if I, if I misheard, it but I mean, it sounds like.
Obviously the change in the guide predominantly the mortgage JV and you're saying that I don't know if we should maybe just back into what that change in commission splits if that's the.
The rest of the difference and I'm just curious if you can give kind of an updated target on that and maybe thoughts on the cadence of splits through the year.
So the splits are definitely a much smaller impact.
The guidance change impact very small, there's a bit of sort of what I'll call like seasonality in some of these split increases so what we're seeing in Q1.
We still have a bunch of recruiting that we're doing that we like but as you bring in an ancient the volume doesn't sort of hit till later in the year. So we're seeing higher split increases versus prior year as the agents are just coming on board in the volume kind of comes later.
So thats part of the driver there still was a small hit from property frameworks. The sale of that business in Q1, So that you know call. It a 20 basis point hit.
Q1 is definitely higher than what we see it's not like I wouldn't forecast the Q1 rate increase for the rest of the year.
But to the degree we're still doing active recruiting and our recruiting we're doing is what we call company dollars positive. So the revenue we're getting from these agents more than offsets whatever we're doing on commission splits with them. So I would say the phasing it's more acute in Q1 for some of the reasons that I just said.
But the one thing you can't which is a variable that we're just all stuck with and it's sort of like a.
Feast of riches here, but when your volume is high and you're growing volume on top of already high volume that you had in the prior year.
This is driving agents to be at the higher end of their table and they stay at the higher end of their table until the volumes sort of fade away. So we actually like the higher volume and we will take the higher split that goes along with it.
One other factor too is agent mix when inventory is so tight we are continuing to see the higher end agents get a bigger share of the volume and they are at higher rates. So that is again. It is what it is and it's something that we'll live with but hopefully that extra color hubs.
It does thank you very much Charlotte, thanks, everyone and good luck.
Thanks, Matt.
Our next question is from Tommy majority with <unk>. Your line is open.
Hey, good morning, guys. Thanks for taking my questions here with many of your brands catering toward the high end of the market is it fair to think that religious buyer cohort is somewhat less exposed to higher rates given more all cash or no financing purchases.
And do you know how specifically what percentage of your volumes are all cash versus those figures that we can see a reported by more by now or monthly.
I don't have the all cash numbers to give you kind of by brand here, but where I would start is your statement is really actually very true for our brokerage business I mean, our owned brokerage business like I talked about is architected to be in.
Higher growing higher priced more luxury skewing geographies.
As is our Sotheby's franchise business and our Corcoran franchise business and so those parts of our portfolio, which are quite large and it's by far the majority.
Do skew much more luxury and our I think a little less rate sensitive we know the percent of deals or all cash are much higher et cetera et cetera.
We still do a lot of deals on the mass market side, we do a million transactions.
$345000 price point those are 100% franchise those the economics are a little different.
And so I wouldn't we're not immune at all as a company, but we do have more skew.
Towards the part of the market uses.
The use of mortgages less and maybe a little less rate sensitive on some of that stuff.
Okay. That's that's helpful. Ryan and then.
Kind of along a similar kind of thinking about the affordability constraints with mortgage rates, having risen do you have any concerns or kind of any intuition that some of the recent activity in the housing hasnt been a pull forward ahead of fears that.
Rates could continue to rise further.
Actually no.
Look I think in 2020, we saw a little pull forward, maybe if people buying second homes, you know kind of in the depth of Covid, but no. I mean, we are operating in a world where rates are rising, but it's very supply constraint right.
Demand is incredibly strong right, you've got a demographic thing happening with demand.
You know not only just the millennial generation guys, but like the the five biggest birth years of millennials are going to be turning 35 here in the next few years effectively and so like it's the biggest part of the biggest generation. You also have the migration to better tax whether environmentally of the remote work thing demand is just a lot higher.
And then supply out there we have more houses we could sell them.
You know rates are not are not necessarily stopping that at the risk of going a little long here I was reading a transcript from one of the builders.
And they did a survey that showed when they said it was just kind of from the transcript.
In response to higher mortgage rates impacting People's home search only a single digit percentage of respondents said they would stop their home search as affordability became they're constrained than they talk about people would pivot to smaller or deferred and they also did that survey back in 2018, and they said the numbers were twice as high in 2018 that people would stop their home search.
With higher mortgage rates. So we're we got rising rates in a supply constrained environment, where demand is very high and while our mortgage business I think is going to take some pain given what's happened in the mortgage market part of the reason we haven't changed our volume outlook is what we actually see on this demand thing.
Happening even with rising rates. So it's a very interesting thing to have rates rise in such a supply constrained environment when demand is high and I predict continue to stay high.
Not just probably for this year, but I think there is a demographic thing for frankly most of this decade.
That's great. Thanks Ryan.
Yeah.
Our next question is from Justin Ages with bearing Berg capital markets. Your line is open.
Alright, Thank you and good morning.
Hi, Joseph.
I was just hoping to get an update on real sure. I know you mentioned you opened in more cities, but hoping to get a sense of the translation from interest in the service and people wanting to sell their home and that turning into you know.
The transactions were Realogy has an agent on.
The actual transaction.
Yeah, we will look we like we like what we're doing we think there's a few other people.
Usually frankly kind of smaller startup kind of company is trying to do the same thing and we think it's great. We think there's a real opportunity. We think we've got something special here because we don't think what traditional brokerages are doing is enough and we don't think the <unk> thing is the future fully either so we really like it.
We're winning a bunch of incremental listings I've given you stats on that in the past.
We don't end up buying.
Very very few houses because again, our agents are successful selling them.
But we're also still in the growing base, we're only in seven cities on the buy side, we're still training agents in places.
And we're still experimenting with different direct to consumer and agent marketing kind of things. So it's a good growth thing that we're really going to invest in this year.
But you.
Part of the reason, we're investing is the thing that we see about winning listings gain share from this getting more deals succeeding with the model that we've got we like the early proof points.
Alright, Thanks, that's helpful and then.
Switching gears and maybe this one's for Charlotte on capital allocation.
And sorry, if I missed it can you just talk about when.
The share buyback becomes.
More attractive I guess.
With a V. The.
The organic growth that you put at the top of your of your list.
So there's two ways to think about it you know I've tried to be pretty clear in the script our priorities that we're definitely retiring our 407 to 2023 with.
We've committed to that and we're going to do that and.
It shouldnt be lost on you the effect that a lot of the investments, we're making are having in our core business and in the market share. So to the extent that those opportunities are available to us and we like the returns we're going to get we're going to do those but it's not lost on us what's happening in the sort of the capital markets and we watch this stuff so.
The priorities are in the order that I gave you on the call.
But don't misunderstand that we don't watch things and that we're on top of things and we'll make the right choice at the right time for our business and for our shareholders.
Alright, I appreciate the color. Thank you.
Our final question for today will come from <unk> Brokaw with Goldman Sachs. Your line is open.
Hi, guys. Congrats on the quarter I just have a couple of questions. If you don't mind jobs.
I think Ron you talked about inventory being tight and demand exceeding.
So I'm trying to get a sense of.
<unk> asked this question before multiple times, but.
Sort of what will incentivize the home owner.
New supply onto the market I am trying to get your perspective here given that we've been in multiple markets now in a low rate environment that we're in a hybrid environment I'm trying to get a sense of what were at.
At what point do you think the homeowner would become more interested in listing their home.
Well the first thing I'd say is.
I think we should always go back to the difference between inventory and supply. So for example, somebody referenced the National Association of Realtors forecast. If you look at the forecast they put out yesterday, they're forecasting about $5 6 million units.
Being traded in the resale market this year now.
Now that's down from about the 6 million units of last year, and that's consistent with our guidance that we think we will have fewer units, but higher price.
Two 6 million units is actually I believe the biggest number.
We would have had as a market. If you look at 2010 to like 2019. So.
So it's literally a year that would actually have more units being traded than any time in the last decade.
So clearly there are a lot of people putting their house on the market, but because of the demand being so high.
For the reasons I talked about earlier the houses are moving much quicker and at any moment inventory is clearly thinner, especially at the first time homebuyer and the low price area. So so people are putting their house on the market, but theyre just not sustain theyre very long and they are putting the house in the market, partly because of those social.
Both.
Migration and remote work truck type trends plus the normal kind of reasons people move.
For me there is two things one is is there still a little bit of a like kind of you know.
Post COVID-19 kind of bump of people, who were kind of at new didn't really think about moving or selling their house during code that could actually help but the second is is frankly, just the need for more supply which is why.
I was why I spend time with the builders and I'm rooting for them and they're awesome.
And also why as an industry leader Realogy, we spend time at the kind of federal and state level and even the local level, sometimes doing anything we can to encourage anything that will make homebuilding easier. So I think we actually have a bit of a kind of social problem, but just not enough housing.
Here, but I do want people to remember that it's not that people aren't putting their house on the market as the demand is so high that they are not sustained on the market for as long because again $5 6 million units and again Thats, just somebody's forecast, but.
I think it's reasonable that would be the biggest amount of housing sold.
Anytime in basically the last decade other than last year, and I find that to be quite striking and just give you a sense of why I keep saying if there were more houses available we could sell them.
That's the issue not just inventory is tight at any one moment in time is my personal view.
No that makes a lot of sense and thank you for that.
Really good color there.
Moving on and maybe this is more for Charlotte, but I'm just curious on relocation do you guys have any update on where the business is heading.
Through 2020 to be handled this year.
Mind, given that the economy is really opening very quickly and we're accelerating into the summer.
Great question.
We have some green shoots of recovery for sure and you'll see it in our reported results and our business is stronger this quarter for sure and we feel good about the second quarter. So things are definitely coming back.
There are two other things, though to keep in mind that types of moves may be different. So there may be companies willing to do like a lesser expensive sort of reload, which.
Maybe a little bit less profitable for us, but there's a ton more of them. So the type of move might have changed a little bit in the short term and while the global economy, maybe coming back a little bit more in some places there still are some.
Places that are really kind of ravaged by COVID-19 . So it is not the same story in every part of the geography financially our results are definitely improved.
So we like the green shoots, but it's still sort of a tale of two cities right now depending on the types of moves and the geography that Iraq I'll give a quick shout out to the team by the way.
Our team in the relocation team has put in kind of a couple really good technology products out move <unk> hundred 60, and a new referral platform, but both are getting really strong feedback.
Frankly, I believe gained some market share in that business, albeit in the tough environment. Charlotte described both with new clients and kind of with more business from some existing clients. So.
We're primarily a U S brokerage kind of driven company, but.
Given that you asked the question.
It is nice to see a few green shoots and to see that our team is still focused on.
Creating value there for their customers.
That's great. Thank you and the last one for me if you don't mind.
The closing of the title underwriter I'm, just curious as to when the $210 million of cash will hit the balance sheet given that I think you recognize the $131 million from.
The noncash gain in the statement of cash flow I'm, just curious on the timing difference between between.
When the cash will actually show up on the balance sheet.
The cash already hit but a lot of that right out went right out the door immediately because we had a transfer the statutory or regulatory cash tied to that business. So the monies. We got in a 152 went right back out because they went along with the underwriter business, that's regulatory cash tied to that business that has some statements of business. So we already saw it but it was blunted.
By the fact that the vast majority of it went back along with the business. It was cash we didn't have access to to use anyway. Because it is regulatory cash is required to be held in that business. So while it always within our balance sheet. It wasn't like we were able to use that cash.
And I recall, you guys always give the readily available cash number.
The difference in and so on a go forward basis that that difference between.
Between your cash in the readily available is going to become a lot closer basically yeah, yeah, and just also remember that we spent $100 million to retire some debt we didnt refinance the whole thing in the first quarter and then that was much higher coupon debt that wasn't.
Hi fees associated to retire that debt, what you'll see and the press release as well as in the Q. So there was a lot of choppy stuff going on in the first quarter.
I appreciate it and best of luck for the rest of the year.
Thank you.
There are no further questions and this will conclude today's conference call and webcast and thank you for participating you may now disconnect.
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