How Did We Get Here?

Agents often see the real estate market through tunnel vision of what is happening in their local market but understanding macro influences that affect the market will help you have better conversations with your clients.

I’ve been doing a lot of reading in the past week. I get frustrated with the authors of real estate articles who focus on the problems we’re facing, without offering solutions. I want to start by talking at a 30,000-foot level about how we got here, so you understand the many forces that are causing the inventory shortage.

So big picture … how did we get here?

  1. Low interest rates are increasing demand
    Historically low interest rates have made it attractive for more people to enter the market or move up. All indicators from both US and CAD governments are that the rates will stay low for the foreseeable future.
  2. Millennials are entering the housing market
    The largest chunk of millennials are now hitting 30 and are ready to enter the housing market. Even though affordability is an issue, low interest rates are keeping them in the game.
  3. Institutional buyers are gobbling up houses
    Large investors with deep pockets are shifting their focus from commercial properties (which have been challenged during the pandemic) to residential properties (which look safe in comparison). I read this week that investors are now buying up 20% of all homes in the US. This is even higher in iBuying hot spots like Nevada, Texas, Florida and Arizona.
  4. Investors are hedging against inflation
    With the threat of inflation looming, one of the best hedges against inflation has always been real estate. Knowing this, savvy investors are moving some of their portfolios into investment properties. We call this residential income (duplexes, triplexes, etc.).
  5. Fixers and flippers are on the hunt
    With skyrocketing sale prices on properties, small contractors are on the hunt for diamonds in the rough, barely fixing them up, and reselling them for a quick profit. Recently I’ve seen listings advertised to “Buy the property as is for X or we can fix it up and you can buy it for Y”.
  6. New construction cannot keep up with demand
    New home construction releases pressure on the market, but we can’t meet current demand. After the 2008 recession, many construction laborers left the industry and didn’t come back. Now there is a shortage of skilled laborers. My friend owns a roofing company and pays his laborers $24/hour and he can’t find anyone!
  7. The supply chain in broken
    When the pandemic started a year ago, many of the manufacturers slowed production due to anticipated decline in the demand. The exact opposite happened. Let’s use lumber as an example. When the virus hit, mills paused production and now they are way behind. Add to that the Asian beetle infestation in British Columbia and we have a critical lumber shortage causing excessive inflation.

Most of these forces are invisible to real estate agents. They understand the market has changed, that prices are skyrocketing, and they are losing out in bidding wars, but they never know who they are losing out to. With limited inventory, low mortgage rates, and a huge influx of investors, the current market conditions will continue for a while.

One of the exciting things about being a real estate professional is constantly working in a changing environment. Just when you get a handle on the current market, something will happen that changes the direction of our economy. There are always geo-political and financial forces that are beyond our control. The secret to staying ahead of the pack is to quickly identify changes and pivot to meet new challenges. Simply put … I’ve learned I can’t change the economy, I can only change how I respond to it.

WHAT ARE THE SOLUTIONS?

1

IT’S ALL ABOUT LISTINGS RIGHT NOW

I feel like I’m being repetitive, but listings are where it is at. If you have the listings, you have the power. I want everyone to commit to putting 1-2 hours of prospecting for listings on your schedule EVERY DAY. Not once a week, every day! Some of you will say you are too busy. You are most likely running with buyers. You will be much more successful if you spend 2 hours prospecting every day rather than driving buyers around looking for houses that don’t exist. I can’t say it enough. Listings, listings, listings.

2

WINNING IN MULTIPLE OFFERS   

If you are working with buyers, you will be competing often. The secret to successfully navigating multiple offers is to do your homework. This will require more upfront work on your part, but it will save you and your buyers a lot of heartache and frustration. Before you submit any offer, do a CMA on the listing. Many sellers are aggressively underpricing listings to attract buyers, and you need to help your buyers make wise decisions. A CMA will tell you what the home SHOULD sell for based on current sales adjusted for monthly increases. I read this week that an agent in Washington had buyers for a home listed at $850,000. Homes in this area have recently sold for 10% above asking price. His clients offered $150,000 over asking which seemed like a good offer. The home ended up selling for $230,000 over asking. What seemed like a strong offer only put his clients in the middle of the pack. His approach to preparing his clients was sloppy. Houses can’t be priced using a computer and averages. You must intimately know your local market and do a proper CMA. Successful negotiations can’t be done by aggregating information; it takes local expertise.

3

PUT ON A VIRTUAL HOMEBUYER SEMINAR

If Millennials are becoming a major contender in the first-time homebuyer market, you need to get their attention. An easy way to do this is to host a virtual first-time homebuyer seminar on Zoom and broadcast it live on Facebook and YouTube. You don’t have to do it alone. Invite subject-matter experts like mortgage, title, and a home inspector. Each of you speaks for 10-15 minutes. Keep it to an hour and accept questions. Send postcards into apartment buildings advertising your free seminar. Why pay rent when you can own? Advertise on Facebook and Instagram. Email everyone in your CRM system to invite them and ask them to invite their friends. Use the seminar as a reason to prospect in starter home neighborhoods. Let homeowners know you will introduce their listing at your seminar, and they will immediately have prospective buyers. This strategy may appear like you are search for buyers, but you are really using it as a reason to prospect for seller listings. The hook is that you will introduce their new listing to a lot of potential buyers.

If you want to improve your sales skills in 2021 and close more deals, check out https://leadersedgetraining.com/virtual-training.

Chris Leader
President
Leader’s Edge Training

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