The Market is Shifting
Rates continue to rise as governments battle inflation. As rates rise, so do days on the market when it comes to real estate inventory. Fewer people qualify, so there are less buyers in the market. Ultimately, if rates continue to rise, prices will fall, and in some areas that has already started.
Some agents would argue: “Not in my market!” They would tell you inventory is still low and there are still many buyers for every property that is listed. But I would argue that most of the data we collect is lag data that reflects what happened last month or last quarter.
For most agents, they miss the shift. They keep doing what was working and they become frustrated with their decrease in success. It is no secret rates are going up, and governments are anticipating another super hike next month of 50 basis points. Some analysts predict rates will be at 7.5% by the end of the year and be at 8.5% by the end of 2023. You may argue that will never happen because it would be catastrophic on the industry. But history repeats itself and if we don’t learn from our history lessons, we are doomed to repeat the same mistakes over and over again.
As rates rise, the markets slow down. The first sign of change came Friday from one of my students who called me because at a local level, his city’s inventory levels are growing, the days on the market are increasing, and showing traffic is way down. He is selling his semi. The most recent sale for a similar unit was for $1.3 million. He thought he would put his semi on the market for $1.2 million and with aggressive pricing he hoped to generate multiple offers. During the first 17 days on the market, he only had 3-4 showings. He held an open house but only a few nosey neighbors showed up. Now there are 9 similar homes that have come on the market in the last three weeks. There have been no sales and very little traffic. The agent called me because he’s concerned. He has been in the business for 2 years and he’s never seen this before.
Now is this an anomaly or is this the canary in the coal mine? Not knowing the answer, I started to do some research and here is what I found. Toronto housing sales dropped in April by 27% from March, and they are down 41% year over year from April 2021. House prices have also dropped by about $177,000 or 11%. British Columbia is reporting a slowdown in sales, as well as a decline in prices. New York and Ohio are also reporting slowdowns, just to name a few.
You could argue that this is not happening in your market, but I would advise you not to have blinders on. When the market starts to shift, you need your eyes wide open, and you need to develop your own opinions based on market data. What do you need to look at?
- Is the inventory in your area rising or falling? How many properties are for sale today versus last week or last month?
- Are the days on the market increasing? Does it take longer to sell a listing today compared to last month?
- Are multiple offers slowing down? Agents tell me that a few weeks ago they were getting 20-30 offers on a new listing and now they are only getting 4-5 offers on a new listing. In some cases, with fewer multiple offers, buyers are starting to question if they should pay more than asking.
You could argue these are one-off situations and they are not the trend. But I would argue all trends start somewhere. The question is, has the fever broken? Did the rise in rates cause a retreat in your market yet? If rates continue to rise to slow inflation, the entire economy will be impacted, including your business.
What will you do to take advantage of the change? My first suggestion is not to get pushed around by the market. Take control. When we start to see the market shift, become hyper-focused on market data:
- Don’t just look at market data once a week or once a month, look at it every morning.
- Don’t base your conversations with clients on gut instinct, back up your conversations with evidence.
- Approach the market from your new vantage point. If the market is slowing down, what strategies do you need to start using that you let go of during our overheated market?
- Change your talk tracks. Prepare sellers that they will get fewer offers and their home may take longer to sell. Sellers will continue to have an inflated sense of what their home is worth based on what their neighbor got last month. You need to dampen down their enthusiasm without scaring them into not selling. Use fear of loss with buyers to encourage them to lock in rates and before they go up. Let buyers know that it is a good time to buy because they won’t have as much competition and sellers will need to be more negotiable.
- Remember that most people sell in an apples-to-apples market. If their house goes down in value, so will their next house. If sellers are moving up, it is even better because if values go down by 10% for example, their house is worth 10% less but so is the more expensive house they plan to buy, so they profit from the spread.
- Plan to spend more on marketing your listings. In the past two years, you could pretty much sell a house by putting it on the MLS. Agents got lazy with regard to how much marketing they were investing in. As the market shifts, you will need to go back to marketing best practices to ensure your listing gets the exposure it needs. You should plan to spend approx. 20% of your commission on marketing the property (photography, videography, staging, post cards, brochures, online advertising, open houses). Don’t leave any stone unturned.
- Improve your communication plan with sellers. In the past few years, you could list a house, it would sell in minutes, your sellers thought you were a rock star, and then you could move on to the next client. Now, with listings staying on the market longer, you need a solid communication plan to stay connected with sellers and manage your relationship over a longer period. It takes finesse to keep sellers happy when no-one is coming to see the house. Your communication plan should include a weekly call to discuss the marketing you’ve done and the marketing you plan to do this week. It should include follow-up calls after every showing to let sellers know what the buyer prospects thought. Be diligent in calling every visitor who comes to your open house to provide your seller with feedback. Check your number of views the property is getting online, so you can demonstrate to sellers that even if no one is physically coming to see the house, it is getting viewed __ times online.
Some of you may interpret this conversation as a bad news report. I would say it’s not. It is just change, and change is good, even if it is painful. We all like routines. They help us to get more done in less time, with less energy. It is hard work to retool our strategies, but retooling is part of remaining relevant. You owe it to your clients to stay current and anticipate where the market is heading so you can help them succeed while others don’t.
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