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After the first six months of 2023, some of the pontificators aren’t quite sure what’s happening in real estate. We have reached the halfway mark and the data has been collected to give us, perhaps, a glimpse into what the rest of the year may hold.
The numbers
The National Association of Realtors reported in April that sales were down year over year by 22 percent. January marked the fifth consecutive month U.S. new home construction fell. Many firms have announced layoffs, but I’m betting those people were not agents.
Multi-family looks strong for the moment but could face financing issues in the future. Single-family home sales are edging up, constrained by lack of inventory. Prices are going down as interest rates rise.
At the same time, some of those entities who saw single-family homes as an investment have hit the wall. And now cometh bank crisis 2.0 to add more uncertainty while a whiff of recession lingers in the air.
When you dig through the analysis, it seems to be a matter of point of view, largely. One thing is clear; a shift is taking place. I’ve been through quite a few, so I ought to know.
As I began my real estate career, interest rates rose steadily from nine percent to highs never seen before and peaked around twenty percent. I didn’t leave the business, I learned creative finance. I bought the house I live in today by taking subject to an existing FHA loan at 7.5 percent, a new second trust deed at 17 percent and the seller carried a third at 10 percent for a blended rate of 12 percent. And no one laughed.
Today my interest rate is 3.65 percent. Having had that experience, I say to nervous buyers, “You marry the property not the loan rate.” And I still love my home.
Here are the nine ideas and strategies you need to adopt to flourish in any market:
1. Interest rates don’t matter
While it is true that some borrowers will be unable to qualify for funds, it is also important to keep in mind the value of the mortgage interest tax deduction which tends to soften the blow of higher rates.
2. Rising prices, falling prices: Who cares?
They are two sides of the same coin. Much of the recent inventory shortage has been exacerbated by institutional buyers. Price inflation came from entities overpaying with Wall Street money and pushing out owner-occupiers. International buyers also invested heavily in American homes.
3. The business of real estate is not the real estate business
The agents and brokers who are out in their communities are the real estate business. The brand owners, the financiers, the leveragers of Wall Street money are the business of real estate, and this is where the layoffs are increasing as revenue declines.
Their collective view is that we are headed for difficult times. But they had a good run and now we will see what, if any, value they bring to the street. But we will go on, and some of us will have our best years ever.
The business of real estate is far more dependent on favorable market conditions than is the real estate business. The real estate business is driven by predictable life events that occur with regularity. Often these events are exacerbated by downturns.
The real estate business is a Main Street business. We participate in our communities, and we burrow deep. We know what’s going on because we are part of people’s lives. Commercial and industrial property is more driven by available capital than by need; where I live, we have an excess of retail space and a shortage of housing.
Many outsiders have considered the real estate business inefficient and believe that new methods or technologies will provide the missing piece and they will divert the profits to themselves. But there is no missing piece, and what appears to be inefficient is really just overcrowding. A few agents usually have most of the listings because that is what they focus on.
4. There is always a way
Those of us who have survived through it all have adapted to the circumstances of the time. In fact, we are more necessary than ever. An algorithm won’t replace us because real estate is about people and often people in crisis.
Empathy is something that can only be provided by a human being.
5. Desirable communities are always in demand
Location is never more important than in a receding market. Demand for good homes does not abate. In my market, we have the same obstacle we have always had: insufficient inventory to meet demand. In my zip code, there are fewer than 13,000 homes housing 40,000 people and only 13 single-family homes listed on the MLS.
At the same time, we have abundant non-performing retail space that sits boarded up while waiting to become future housing.
6. You make the market; the market doesn’t make you
When the economy is strong, and demand and demographics are driving the market, a whole bunch of new licensees flood into the business. When sales volumes begin to decline, they flood right out again.
But your success or failure doesn’t depend on circumstances, it is the by-product of a simple idea; the goodwill of others paves the path to prosperity.
7. Meeting more people creates more opportunity
The one thing you can do every day to improve and fail-proof your business is to expand your community through activities that you enjoy continually. Natural attrition will always be whittling away at the size of your community. By setting a goal of meeting one new person every workday, you will also be upgrading with people more inclined to help you.
In a research paper entitled “How many people do you know?: Efficiently estimating personal network size.” by Tian Zheng, Department of Statistics, Columbia University, April 22, 2009, the author determined that the average American knows 600 people. With the growth of social media, that number might be even higher.
What if you really tried? But for the sake of simplicity, let us say that only one hundred of them are homeowners. About 7 percent of homeowners sell each year. If you know one hundred homeowners, what is the likelihood that everyone would list with you?
Their listings are insignificant and irrelevant. You want access to all those potential listings. One hundred people who know just 100 people is a community of 10,000. That is 700 listings. If you fail to get 95 percent of them, you will still have 35 listings annually. That’s pretty good for a 95 percent failure rate.
You want to meet more people for the purpose of owning a space in their mind such that any time someone they know has a life event that requires advice regarding selling a home, your image comes to mind, and they contact you or, better yet, recommend you.
As sales volumes decline, more people will be forced to consider selling. You want to know who they are when they are evaluating their options not after they list with someone else. According to the 2022 National Association of Realtors Home Buyers and Sellers Generational Trends, 82 percent of homeowners listed with the first agent they met.
8. Asking for help is a superpower
Help with what? Listing referrals. Does everyone you know understand how important listing referrals are to your business? Why not? What are you waiting for?
9. Honing your Comparative Market Analysis presentation helps you stand out
This is where the money is made in residential real estate. And lost. It isn’t about you. They don’t care how much money you make; they don’t care about your sales awards or your car. You are there because change is occurring in the lives of the homeowner.
Before they make any final decision, they will want to know the net equity in their home and the pros and cons of their options. Selling a home is more necessary evil than it is best option.
This is what it all comes down to. Showtime. If selling the home is the best option, you’ll need to come to an agreement on the price. The comparables don’t lie, but, in most cases, the seller will want more. You are responsible for educating them so they don’t make a bad decision. Overpricing, particularly in a declining market, is malpractice.
Final thoughts
Navigating a changing marketplace is your responsibility, but it is also your living. If you present the facts well and have earned the seller’s trust, you will have a marketable listing and future income.
Those of us who cannot afford a recession are doubling down on productive activities, it isn’t like we can just walk away.
Former NFL quarterback and devout Catholic Philip Rivers always wore a hat to practice inscribed with the Latin phrase Nunc Copei to remind himself to overcome adversity. It means, “Now, I begin.” That’s how the tough do things.
George W. Mantor has spent more than four decades in the real estate business and is the author of The Awful Truth About Careers in Real Estate and What to do About It. A Guide to Building a Rewarding Real Estate Business. Connect with him on LinkedIn.
