Anywhere Real Estate Inc. (04M.DU) Earnings Call Transcript & Summary

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 in the Investor 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's Senior Vice President, Alicia Swift. Please go ahead, Alicia.

Thank you, Chris. Good morning, and welcome to Realogy's First Quarter 2022 Earnings Conference Call. On the call with me today are Realogy's CEO and President, Ryan Schneider; and Chief Financial Officer, Charlotte Simonelli. As shown on Slide 3 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 rules, important information regarding these non-GAAP financial measures is included in our earnings press release and slides. Last, the industry data referenced during today's call is based on NAR's most recent public estimates, which are now subject to review and revision. Factors that may impact the comparability of our home sales statistics to NAR 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. Realogy continues to strategically transform our business as we move real estate to what's next. When we last spoke in February, I shared Realogy's 2021 progress as we completed the first chapter of our transformation, highlighted by profitable organic growth, substantial market share gains, a transformed balance sheet with much lower net leverage and proven cost discipline, all driven by great talent and our increasing technology leadership. Q1 of 2022 continued that success. Excluding the unseasonably high 2021, we delivered the best first quarter top and bottom line results in the company's history. Revenue was $1.6 billion and operating EBITDA was $69 million, the latter is more than double recent Q1 results by $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 and Florida. Our franchise business volume was up 1% year-over-year, and overall Realogy 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 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 propositions, increasingly attract to retain agents at tremendous scale. As our franchise business expanded, we're especially excited by the ongoing growth of our corporate high-end franchise brand. 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 3x net leverage ratio, the best Q1 results in the company's 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 our RealSure joint venture. Remember, we remain skeptical of the pure iBuying 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 RealSure, expanding our RealSure buy product to 7 cities in the quarter, and our RealSure sell product is now in 25 cities. We are 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 are 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 million 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 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 2 weeks. Multiple offers per home and sales price above list price measures are still meaningfully above historical norms in our portfolio. And the premium and luxury parts of our portfolio are showing the most strength, as you can see in our Q1 brokerage numbers. And our number of listings on $500,000 and up property is actually up versus 2021. If we have more housing supply, we could definitely sell it 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 home buyer. Our number of listings on properties below $300,000 in our franchise business and below $400,000 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, our 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 1 percentage point of volume is worth about $15 million of operating EBITDA in our business. So 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 in positive demographics and social trends remains bright. So I'll now turn the call over to Charlotte to discuss Q1 in more detail.

Thank you, Ryan. Good morning, everyone. Realogy 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 of 10% year-over-year, and our strong Q1 results were on top of an already strong Q1 '21 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 headwinds, Q1 EBITDA of $69 million was much stronger than Q1 2020 of $32 million, Q1 2019 of negative $4 million and 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 remain 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 leads and relocation, delivered one of the best first quarters on record with Q1 revenue of $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 to 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 costs 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 RBG. Commission splits increased 254 basis points, driven predominantly by strong volume growth, agent mix, recruiting and retention. We like 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 3 less days from our underwriter business due to the timing of the sale. Lower purchase and refinance volumes coming off the unseasonal 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 GRA JV earnings in the prior year. In Q1 2021, GRA 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 a senior secured leverage ratio of 0x and a net debt leverage ratio of 3x, and we will continue to target a 3x net leverage ratio through cycle moving forward. As a result of January's successful $1 billion 5.25% 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 4.6% 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 $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 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 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. Realogy is leading the market and growing share with a strong core business, additional growth vectors like RealSure and other JVs, first-class brands, 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 Realogy to a different competitive set. Our new COO, Melissa McSherry, who joined us in February from Visa will also describe this transformation, including product and technology innovation proof points we are already delivering. And Charlotte will share our 2026 financial targets, including the new growth opportunities, sizing and what it means for our balance sheet and capital allocation. Finally, I want to give you more exposure to our great talent as an important component of our Investor Day, and we're really proud of the recent recognition as one of LinkedIn's top 50 companies for talent in the U.S. for the second year in a row. So with my excitement about what's ahead for us, we will now take your questions.

[Operator Instructions] Our first question is from Ryan McKeveny with Zelman & Associates.

So Ryan, the '22 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 changed much since last quarter, even with higher rates, and it's more so just, again, the mortgage and split dynamic? So maybe if you can start with connecting those dots and maybe just give us a general update on kind of how you're thinking about the resale market and transaction volume playing out through the year and ultimately embedded in that guidance.

Well, 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. Because we look at what happened in the first quarter, what's happened in April, our mortgage business and the whole mortgage industry took a pretty tough hit. And 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'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 $500,000 and up area, which is where our business does kind of skew. But there's 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. It's what we delivered in Q1. It's what April is looking pretty close to -- or at 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 hit in our mortgage business in the quarter, as you saw with the $8 million loss. And again, that is the majority of the reason that we've changed the guidance is what's happening to our mortgage business.

Got it. And Charlotte, I guess, on the cost structure, if we fast forward beyond '22 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? Would those costs or expense categories be similar to ones you're already focused on with the cost savings? Or are there other categories you'd take a closer look at if it turns out that the market does start to slow more materially next year?

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. It's really 2 streams. Like the stuff that we're doing now, there's 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, depending on how dramatic there are movements in the housing market, there are other things we can do of a more temporary nature like calling back, travel and entertainment, meetings and conferences, whatever. There's more discretionary spend that we would attack if there was something dire going on in the housing market. So I see it as really 2 streams, and they're both accessible 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, too, depending on dramatic swings in housing.

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 can talk more about that in 10 days, but that's a proof point that we've actually delivered on what you're asking in the past.

Our next question is from Anthony Paolone with JPMorgan.

I guess first couple for Charlotte. I understand the tough comps in 1Q 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 sale of underwriting, try to just make sure we clean up numbers for 2Q?

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 you're 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 at EBITDA. And then on volume, really, that 80 -- just don't forget about that 86% volume growth. The thing that impacted us too in the first quarter that won't be quite as bad of an impact is operating expenses. So the operating expenses were 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 hadn't done in Q1 of last year. So while it was a severe impact in Q1, it will definitely be less of an impact. So on the underwriter, don't forget to just add back in sort of our less than 1/3 share of that. But those are the biggest drivers, I would say. And if there's anything else you need, just let us know.

Okay. And my other question was going to be around expenses and you kind of touched on that. But as we think about the rest of the year, you had mentioned the higher OpEx in 1Q. So if we look at that number, is that higher just than it normally would be seasonally? Or is it -- do you think it will actually -- OpEx will be lower in 2Q than it was in 1Q?

So how 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 it will probably improve as we get into Q3 and Q4. The $35-ish million 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 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 million or $30 million worth in the second quarter of that increase year-over-year.

Got it. Okay. And then just maybe a couple for Ryan. You mentioned last quarter your objective this year of gaining market share, and I think the 4% system volume was pretty close to NAR, I think, in the first quarter, so it seemed consistent. But I guess just more specifically, when you say gaining market share, what are you looking at to measure that? Because agent count is up 6%, but I don't know what NAR agent count was. So I was just trying to gauge like how you're measuring that.

Yes. You've already got it, Tony. We look at total volume, literally just total volume, and we do use the NAR volume as kind of as a core metric there. So we kind of held share in the first quarter our owned brokerage business where we make kind of higher unit -- higher money per unit, kind of was more than double NAR in terms of growth. So we feel really good about that. But that's kind of the metric that we use. We're excited about our business drivers. We do have a little bit of inorganic kind of growth happening likely this year as we -- Charlotte talked about strategically. But we absolutely still have that as our objective, and we'll measure it against kind of that public number and so you'll be able to see it and obviously we'll talk about it.

And to that point, Tony, just remember, too, like we were significantly ahead of the NAR last year in Q1 and Q2, like I just mentioned. The latest full year NAR forecast is, I think, minus 1 or something, and we're still sort of in the mid-single digits. So you may not see it every quarter, but it's sort of -- it evens out and awash based on sort of part of the prior year comparison so...

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 buy-side commissions. I don't know how much you could really say about the lawsuits, but just bigger picture, can you comment on just how you're thinking about if something does change with regards to perhaps unbundling commissions, like how you would react or what the plan would be for Realogy or what you think the implications on the industry would be?

Yes. Well, look, as you kind of said, there's really -- there's not a lot of comments that I can do on pending litigation, Tony. We believe the lawsuits obviously don't have merit, and we're going to defend them vigorously. But to your question, I think you should know, we take them seriously, and we've got an experience both executive and legal team on this kind of big litigation matter both in this industry and in other industries. And with 1 year now, 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 they don't have merit. We're going to defend them vigorously. And I really just am not going to be able to comment much on pending litigation.

Our next question is from John Campbell with Stephens.

I think you guys have probably given us enough puzzle pieces to kind of put this together, but I'm hoping you guys might be able to shortcut this. After stripping out the title underwriter earnings, what's the underlying EBITDA margin for the Title Agency business?

Yes. I don't want to misquote that. I don't have that right at my fingertips, but we'll follow -- I know 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 on our later call. It's a 40-60 split, though, before -- like if you strip out the GRA piece, it's a 40-60 split.

Okay. Great. And then I saw the 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 opportunity to bill or if that's a sign of kind of the growing appetite for M&A? It sounds like you guys kind of hinted that, but just curious about your thoughts.

Yes. We're glad to have done the Coldwell Banker Bain up in the Pacific Northwest. It's the one geography where we don't have -- if you -- if I step back, John, our own brokerage business skew is luxury and premium, right? We're in about 50 geographies. Average price point in the Coldwell Banker side is like $560,000. Average price point in Southeast Corcoran is like $1 million-plus, right? And the business is kind of architected to be in some of the best geographies with both that luxury end kind of skew but also with high growth. And when you look at our map, there's really one place where we actually don't have a presence as a kind of luxury premium kind of owned brokerage business, and it's right up there in the Pacific Northwest. And so we think Bain is a good opportunity to really kind of build that strategic gap in our portfolio. It was an existing franchisee, and so there's -- so 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 that Seattle area kind of stuck out when you look at kind of our geographic footprint. And this was a really nice kind of market -- one of the market-leading company ways to fill that. And so we did go ahead and do that here this month. We can give you more financial detail in next quarter's call, but that was an April thing. And we're glad to have done it, and hopefully, consistent with kind of the luxury premium kind of lean 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 outweighing supply. And so we're really happy to have Bain and all their agents and our -- and employees part of the company.

Okay. That's great to hear. And then, Ryan, if I could squeeze in one more. You talked about April -- the April closings kind of holding the line on the low single-digit growth. Do you have the exact sort of details around just the open orders of the listing you've seen thus far in April?

I have the exact and, frankly, without giving you the exact which I'm not going to do, the listings being up in -- $500,000 and 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.

Our next question is from Matthew Bouley with Barclays.

So on the mortgage JV, realizing there's lot of moving pieces around competition in that world and maybe the speed change in interest rates makes a difference here, too. And again, I know the business is early in its scaleup. But just curious for a little handholding on that. At today's scale, is there kind of a framework for 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 breakeven interest rate, if that makes sense.

Yes. So it's a couple of different things you got to think about. This is -- you're right. So the speed of which the mortgage rate change definitely had an impact on competition. You've seen this for decades as it's just what happens in the industry. And there's an acute period of a couple of months, 2, 3, 4, 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've got -- it's something that's 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 some officers. There's still expenses that we have that are discretionary. So even in like 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. But this is more about the bigger picture for us. And we love 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 the refi is just gravy when you get it. There are periods of time over history where that's just going to be sort of an additional volume benefit, but you can't count on that for the long term. So you got to 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.

Got it. Okay. That's very helpful. And then on the commission split commentary, apologies 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 rest of the difference. 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?

Yes. So the splits are definitely a much smaller impact to the guidance change, in fact, 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 -- we have a bunch of recruiting that we're doing that we like -- but as you bring in an agent, the volume doesn't sort of hit so later in the year. So we're seeing higher split increases versus prior year as the agents are just coming on board and the volume kind of comes later. So that's part of the driver. There still was a small hit from Property Frameworks, the sale of that business in Q1. So that's, call it, a 20 basis point hit. So 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 the recruiting we're doing is what we call company dollar 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'll 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 [indiscernible] live with, but hopefully, that extra color helps.

Our next question is from Tommy McJoynt with KBW.

With many of your brands catering towards the high end of the market, is it fair to think that Realogy's 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 reported by NAR 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 own brokerage business, like I talked about, is architected to be in the 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, I mean it's by far the majority, do skew much more luxury and are, I think, a little less rate sensitive. We know the percent of deals are all cash are much higher, et cetera, et cetera. Now we still do a lot of deals in the mass market side. We do 1 million transactions at a $345,000 price point. Those are 100% franchised 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 that uses mortgages less and maybe a little less rate sensitive on some of that stuff.

Okay. 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 housing has been a pull forward ahead of fears that rates could continue to rise further?

Actually, no. I mean, look, I think in 2020, we saw a little pull forward maybe of people buying second homes kind of in the depths o COVID. But no, I mean we are operating in a world where rates are rising, but it's very supply constrained, right? And demand is incredibly strong, right? You've got a demographic thing happening with demand not only just the millennial generation guys, but like the 5 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 weather environment. We have the remote work thing. Demand is just a lot higher than supply out there. We have more houses we could sell them, and rates 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 and they said, and it's just kind of from their transcript, that 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 their constraint. Then they talk about people would pivot to smaller or differed. And they also did that survey back in '18, and they said the numbers were twice as high in '18 that people would stop their home search with higher mortgage rates. So 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 both high and I predict continue to stay high not just probably for this year, but I think there's a demographic thing for, frankly, most of this decade.

Our next question is from Justin Ages with Berenberg Capital Markets.

I was just hoping to first get an update on RealSure. 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 want to sell the home, and that's turning into transactions where Realogy has an agent on the actual transaction.

Yes. Look, we like what we're doing. We think there's a few other people usually, frankly, kind of smaller kind of start-up kind of companies 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 iBuying thing is the future fully either. So we really like it. Look, 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 phase. We're only in 7 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 thing. So it's a good growth thing that we're really going to invest in this year. But part of the reason we're investing is the things we see about winning listings, gaining share from this, getting more deals, succeeding with the model that we've got, we like the early proof points.

All right. That's helpful. And then switching gears and maybe this one is 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, vis-a-vis the organic growth that you put at the top of your list?

So there's 2 ways to think about it. I was trying to be pretty clear in the script. Our priorities are we're definitely retiring our 4 0 7 due 2023. We've committed to that, and we're going to do that. And it shouldn't be lost on you the effects 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.

Our final question for today will come from Kwaku Abrokwah with Goldman Sachs.

Congrats on the quarter. I just have a couple of questions, if you don't mind. I think, Ryan, you talked about inventory being tight and demand exceeding the supply. So I'm trying to get a sense of -- I think I've asked this question before multiple times, but sort of what will incentivize the home owner to bring new supply onto the market? I'm trying to get your perspective here. Given that we've been in multiple markets now, a low rate environment now in the high rate environment, I'm trying to get a sense of what -- at what point do you think the homeowner will 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 that's down from about 6 million units of last year, and that's consistent with our guidance that we think we'll have fewer units but higher price. The 5.6 million units is actually, I believe, the biggest number that we would have had as a market, if you look at 2010 to like 2019. So it's literally a year that we'd 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 at any moment, the inventory is clearly thinner, especially at the first-time homebuyer and the low-price area. So people are putting their house on the market, but they're just not staying there very long, and they're putting the house in the market partly because of those social -- both migration and remote work trends, plus the normal kind of reasons people move. For me, there's 2 things. One is, is there still a little bit of a like kind of post-COVID kind of bump of people who were kind of -- who didn't really think about moving or selling their house during COVID that could actually help. But the second is just, frankly, just the need for more supply, which is why I spent 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 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 with 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, it's the demand is so high that they're not staying on the market for as long because, again, 5.6 million units. And again, that's just somebody's forecast, but I think it's reasonable. That would be the biggest amount of housing sold any time in basically the last decade other than last year. And I find that to be quite striking. And just to give you a sense of why I keep saying, if there were more houses available, we could sell them. That's the issue, not that just inventory is tight at any one moment in time is my personal view.

That makes a lot of sense. 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 -- through the end of this year, if you 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. Our business is stronger this quarter for sure, and we feel good about the second quarter. So things are definitely coming back. There are 2 other things though to keep in mind. The types of moves may be different, so there may be companies willing to do like a lesser expensive sort of reload, which is 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 may be coming back a little bit more in some places, there still are some places that are really kind of ravaged by COVID. So it's 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 2 cities right now depending on the types of moves and the geography that you're in.

I'll give a quick shout out to the team, by the way. Our team and the relocation team has put kind of a couple of really good technology products out, MovePro360 and a new referral platform that both are getting really strong feedback and frankly, I believe, gain some market share in that business, albeit in the tough environment Charlotte described, both with new clients and kind of with more business from 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. 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 recognized the $131 million of the noncash gain in the statement of cash flow. I'm just curious like the timing difference between when the cash will actually show up on the balance sheet.

Yes. The cash already hit, but a lot of it went right out the door immediately because we had to transfer the statutory -- the regulatory cash tied to that business. So the monies we got in, $152 million went right back out because they went along with the underwriter business. That's regulatory cash tied to that business that has to stay with the 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. It's required to be held in that business. So while it's always within our balance sheet, it wasn't like we were able to use that cash.

Yes. And I recall you guys always give the readily available cash number, and I'm guessing that's the difference. And so on a go-forward basis, that difference between your cash and readily available is going to become a lot closer basically?

Yes. Yes. And just also remember that we spent $100 million to retire some debt. We didn't refinance the whole thing in the first quarter. And then that was much higher coupon debt that wasn't -- we had high fees associated to retire that debt, which you'll see in the press release as well as in the Q. So there was a lot of choppy stuff going on in the first quarter.

There are no further questions, and this will conclude today's conference call and webcast. Thank you for participating. You may now disconnect.