As a real estate industry, we are living through interesting times. We are being forced to defend against three challenges, or what I call the three I’s — inventory, interest rates, and inflation. It’s not all doom and gloom; however, and there are opportunities available for those who persevere.
I am hearing more agents across the country suggest we are now in a buyer’s market. While I agree that we are moving in that direction, we are far from a true buyer’s market. Inventory sits at only two months across the top 100 markets, which is well within the parameters of a seller’s market. Moreover, there are many agents who have never witnessed a normal market where homes sit for 30 days without wondering what must be wrong with it. It’s time for a shift in mindset.
Getting back to a healthy market
Inventory is a major issue, and while I do not love to see interest rates go up, some increases are needed to help get us back to a healthy market. I’m just not sure that raising interest rates by 118% over the last 18 months was necessary. It is beyond stressful watching the price of money rise so much. Worse, it has made the dream of homeownership unattainable for so many people.
The key question people are now asking is whether interest rates are done rising. My gut and experience suggest that we have not seen the end. Tackling inflation is a combination of art and science, and very few people agree on what the exact recipe entails.
For more than 40 years leading up to the housing recession in 2007, interest rates averaged over 7% and reached as high as 18%. Interest rates in the 5% and 6% range are not crazy, and as much as we would all prefer rates to still be around 2%, I do not believe those rates were sustainable long-term. It is important to help buyers understand that if they try to wait out these high rates in hopes that they come back down, then they will likely miss out.
Home prices will continue to rise as long as there is a shortage in inventory. Even if rates dropped back to 3.5%, and homes continued to appreciate by even 5% annually, mortgage payments would end up being around the same. Plus, buyers will have missed out on living in that new home and the equity that would have grown each year. Even if rates drop, there is very little value in waiting, if any. Again, it’s time for a shift in mindset.
Possible inventory woes
Rising interest rates have also had a negative impact on potential sellers who now question whether they want to ever move, causing more inventory woes. If skyrocketing interest rates were not bad enough, home prices have also risen at absurd rates. The combination of increasing rates and rising home prices have made it harder to upsize a home, and almost pointless to downsize if the payment is going to end up the same. What’s more, inflation isn’t just affecting home prices, it is affecting everything, costing the average family more than $3,000 per year, diminishing the average American’s buying power.
The good news about agent productivity
Now, for a little history lesson. Between 2007 and 2011, the number of homes sold dropped from 5.02M to 4.26M, or a 15% decrease. During that same period, agent membership of the National Association of REALTORS dropped from 1.34M to 1.01M, or a decrease of 25%. While the overall number of sales were down, the number of sales per agent increased.
The tough market shed the agents who did not want it as badly, and that could happen again. Agents with the perseverance to stay strong and double-down could see even greater success over the coming years.
How to thrive
As a Realtor, there are several things you can do to thrive during these uncertain times. First, know the market’s history. Create scripts that help potential buyers and sellers make smart decisions. That alone will help generate more sales.
Second, invest more on marketing while other agents pull back in their desire to weather the storm. Now is the time to gain market share so that when the market turns around, and it will, you will be better positioned to own your market.
Finally, the split you pay your broker matters. The more money kept on each sale, the more money available to invest in marketing and growing your business. Make sure you invest in your business while also having more money available for your family during these trying times. Don’t wait until you feel yourself drowning to do something about it. The next few years can be your best years yet!
Josh Harley is a serial entrepreneur, Founder, and CEO of Fathom Holdings Inc.
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