During a recent mastermind session with Gary Keller, founder of Keller Williams, some of the top Keller Williams teams in the country heard what Gary had to say about the current state of the market and what it means to the real estate industry.
The concepts and ideas that resulted from that session with Gary gave attendees insights into his assessment of where the industry is, where it is headed, and what agents need to do so their businesses don’t stall.
The following information is a condensed version of many of the discussed topics. Additional context has been added to make the information actionable for the reader.
The market shift is here
The real estate market has shifted in almost every area of the country. Some areas have already taken big hits in sales volume, and prices in many areas are falling. The media is feeding the frenzy with constant coverage–some sensationalized, some accurately portrayed.
One thing is for sure, real estate and mortgages are on everyone’s mind and a hot conversation topic. People are confused, some are scared, and they need direction. Is there an opportunity here for real estate professionals? You bet there is! Those that can properly position themselves in this market and help their clients will thrive.
Consider this; before rates doubled in mid-2022, buyers’ appetite for purchasing homes was practically unstoppable. Were it not for the steep spike in mortgage rates, buyers would still be paying tens of thousands above the asking price for homes. So the demand is still there; unfortunately, the rise in mortgage rates and the looming recession have pulled the rug from underneath the market.
What goes up always comes down; this has proven to be a true axiom in real estate for decades. Rates go up, and rates come down. Home prices go up, and home prices come down. The brokers and agents who thrive do so in ANY market. There is always an opportunity; you just need to identify where it is as the shift happens. You also need to look 2-3 years ahead to identify the opportunity and start positioning yourself for that next shift.
We need to understand the current market dynamics to have a solid action plan. Let’s go over some facts and give context to the information.
We are close to historical mortgage rates averages
If you have been in the business for less than ten years, you have been in an unusual market. Three-percent mortgage rates are not the norm. In fact, looking back at the last 50 years, only between early 2010 and early 2022 have we had mortgage rates below 5%. In forty of the previous fifty years, mortgage rates have been above 5%. Mortgage rates since the 1970s have averaged 7.8%, according to themortgagereports.com.
As a result of the last decade, the public does not remember that mortgage rates were artificially low. That’s right; hopefully, you are aware that the government has acted aggressively through measures like quantitative easing to keep rates low and stimulate the economy. This is the type of information you can share with your buyers to give them perspective on why rates in the 3% range are probably not coming back any time soon. Especially as the Fed is combating inflation.
The “R” word (Recession); current impact and what’s ahead
The biggest threat in the housing market is the government’s intervention to deal with the highest inflation rate in more than 40 years. The last time we had an inflation rate of more than 8% was in 1981. We have been over 8% for most of 2022. In June 2022, the inflation rate was just above 9%. This is not good for the economy, and the government is pulling out all the stops to bring inflation down. The government’s goal is to be around 2%. Clearly, we have a ways to go.
Housing is a significant driver of the economy. With that in mind, the government has made it clear that a “housing reset” may be in order. Fed chair, Jerome Powell, speaking to reporters in June, clearly articulated that they were taking action to dampen the run-up in home prices that had caused prices to soar 37% in two years. Here is an important fact we can’t overlook, that 37% run-up in prices the past few years is 8% over the two-year spike that led to the last housing crisis of 2008.
We are already seeing the impact of the Fed’s policy on the real estate market, and we are just getting started. Over the next 12 to 24 months, the full effect of what has been put in place will run its course. We all know that the real estate market does not turn on a dime; after all, it took more than ten years to get where we are today.
During the 2008 market crash, it took from late 2007 to 2013 for the median home price to return to the Q1 2007 value. That is a six-year trough. If you were in business back then, you probably remember the exit of agents. You probably also remember those who saw where opportunity made boatloads of money. Working buyers and making short sales was a boom for those that pivoted instead of running for the hills.
Positioning for now and the next market boom
During the past several years, selling homes has been easy. First-time buyers were hungry for houses, and those that owned properties saw their homes appreciate and were eager to move up. Mortgage rates were low, so buying and selling was kind of a no-brainer.
The only issue we had recently was a shortage of homes for sale, but that’s about to change. Many buyers are squeezed out of the current market due to higher interest rates, and sellers who have a 3% rate on their mortgage have little incentive to move up and pay a 7% rate on the new home. One solution is increasing rental rates. As rents rise, a new pool of buyers will be created. Educating your clients with some history will put buying a home with a 7% mortgage rate into perspective.
The fundamentals are different in the market. You need to adjust and pivot to keep thriving. During this mastermind, Gary shared some valuable perspectives and action steps to overcome the industry's current challenges.
What you need to focus on:
- Identify your audience and value proposition.
We all know the power of focus; just as a laser can cut through two-feet-thick steel, our efforts can overcome today’s market challenges better if we are focused. We need to understand who we can serve and the value we can bring them.
- Generating leads.
Once you know the market sector you are going to focus on, you need to attract as many prospects as you can. As the pool of buyers and sellers shrinks, you need to be aggressive and methodical in your approach to getting people into your pipeline. Ideally, you are setting up a sales funnel that will convert the “ready now” prospects and put others into a structured nurturing campaign to convert down the road when the time is right for them.
You will need large numbers, and with the shrinking pool, you will need to go big on lead generation to get the numbers you need. You need to be clear on the sales cycle of your specific target, buyer, or seller and strategically spend your money and resources where it will give you the best value. Consider this a long-term plan. In the past, we could afford to generate leads, cherry-pick the “now business” leads, and throw out the rest because there were plenty more any time we needed them. Not so anymore.
We need to understand how and when those B and C leads will convert into sales. Your follow-up and nurture process need to be strategic and deliberate. Consider looking for agents that are exiting the business and acquire their leads. This is just one practical tactic.
- Grow and work your database and leverage technology.
Generating leads without a system in place is a waste of effort and money. Unfortunately, database management and having a clear idea of your financials are probably the weakest area for most real estate professionals.
Find the right technology and spend as long as you need learning how to use it. Have someone on your team that owns it.
- Track everything. You need to know your numbers, period. Keeping a few notes on your notepad or error-prone Excel spreadsheets will not get you to the level of success you want.
From understanding your business goals to knowing what your goal/gap is, you need to know your numbers at a deep level. You also need to easily access them on demand in a format that makes sense to you. Modern tech can help solve this.
We have seen the change in the market coming for a while. A wise person once said, “we can’t change the wind, but we can adjust our sails.” The winds have shifted for the real estate industry, so it’s time to adjust those sails.
Gary’s advice to his group is timely and relevant, as the entire industry is uncertain. Those who have read Gary’s books know how data and facts-driven he is. His messages are always to approach your business with ruthless honesty and clarity.
The actions you take in the next six to 12 months may decide whether you thrive in the new market or you leave the industry, as many will be doing. There will be successes in this new market; you just need to be focused and selective about your actions so you, too, can capitalize on this market and the next.
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