EXTRA!!! EXTRA!!!! READ ALL ABOUT IT!!!! REAL ESTATE MARKET SET TO CRASH!!!!! WORST STATE FOR REAL ESTATE SINCE 2008!!!!!
This is the message quickly spreading, whether true or not, and it is raising fear in potential buyers and agents alike. Which leads me to wonder: Is there really something to worry about in the next couple of years in the real estate market? The market is currently buzzing with activity, even with the uncertainty. Low unemployment rates, millennial interest in investing in real estate in the next few years at an all-time high, and interest rates still low, makes it seem like there isn’t a crash anywhere in sight!
The number one reason that people think the real estate market is due for a crash is history. History shows that every 10 1/2 – 11 years, there is a regression in the real estate market. This has been true, and not only that, but conveniently, it was 10 years ago that we had one of the most devastating crashes since the Great Depression. The problem is that there are some glaring differences between the crash in 2008 (the Great Recession), the Great Depression, and today’s market.
The Great Depression happened because of economic short-sightedness and improper money management. It also led to hysteria, which caused further economic and political strife, which compounded the issue. In the Great Recession of 2008, irrational exuberance in the housing market led people to buy homes they could not afford, utilizing mortgages for which they never should’ve been qualified. As they realized they would lose money by selling the house for less than their mortgage, they opted to walk away letting the property foreclose. People were getting lower-than-low interest rate mortgages they couldn’t afford, and when the mortgage matured, it was unmanageable and unreasonable for the average homeowner. This was obviously devastating for banks, mortgage companies, and homeowners, and it has left anyone who is considering buying a home fearful that something like this will happen again – especially if we’re in year 10 of the historical true 11 year cycle.
So, will history repeat itself? Are we doomed? Let’s examine the current market facts:
- Unemployment is at an all-time low: Our national unemployment rate, currently, is 4.1%. That is the lowest it’s been since the year 2000. More jobs means more money going back into the economy via more spending and more importantly more investing in real estate, stocks, etc. A healthy jobs market begets a ripe housing market and a climate for purchasing.
- Interest rates are competitive and still low, maintaining a consistent 5%. The number one thing smart property investors are looking at are current interest rates. If they’re inflated, people don’t want to buy. That’s an easy black and white issue as there is a tolerance limit as to what people are willing to pay.
- Inventory is at an all-time low. You would be hard pressed to find a market that is more straight forward and clear with regards to the concept of supply and demand. In a desirable area like SoCal where demand (Potential Buyers) is pretty consistent all the time, we become very supply-side-sensitive. This means that when supply (homes for sale) decreases, and demand remain stable, prices are driven up due to scarcity and competition. This is why, as we have all seen, many homes and properties end up in bidding wars between potential buyers. That being said, the main area of confusion for sellers (and agents) currently is why they aren’t receiving immediate activity on their listings if we are truly still in a “sellers’ market”. The answer is simple: just because we’re in a “sellers’ market” doesn’t mean that agents don’t have to do their jobs. A lot of agents who have entered this industry in the last five to six years have been spoiled, because properties have been pretty much selling themselves. That isn’t a knock on anyone, in fact I congratulate agents who have been able build their reputations and livelihood on this sort of market stability. The current market, however, is at a time in the industry when the tortoise will beat the hare – the race is still running, it just requires a little more brainpower now. Agents need to lean on their knowledge of the market, their experience, presence, and patience, as well as their wit and ability to think outside the box. The more innovative and creative an agent is, the more opportunities and traffic they will generate. Exposure in this climate is key. Everyone needs to know the difference between you— a boutique-style, seasoned, quality agent – and an agent down the street who may look the part but has no idea what to do and no value to add. They need to know why they should pay more for you instead of hiring someone else who offers an inferior product/service at lower price, or worse yet why they shouldn’t just try to sell their home themselves! The longevity of your presence in the market, and JohnHart’s presence and major success in the industry, should give you the confidence needed to generate above-average exposure for your listings, to communicate the importance of patience to your clients, and to ultimately achieve the sale at current market value.
- Millennials. In 2017, millennials made up the largest group of homebuyers, clocking in 34% of the total buying pool of real estate, 66% of whom were first time buyers. That statistic is staggering, but it isn’t even close to the projections for millennial presence in the real estate market for this year. Moreover, everything I’ve looked at (and I encourage you to do your own investigation as well) says that there will be an even bigger millennial boom in the real estate market in the next two years. Something like 52% of millennials are projected to make real estate purchases and investments in the next few years. This means that in an effort to branch out and begin building their own investment portfolios, millennials will pick up the slack as “baby boomers” and Generation X’ers slow down their purchasing habits. Since we are already in a low inventory/supply environment and millennials will be moving into the market and sustaining the current level of demand, values should hold steady!
- Rental rates are at an all-time high. Millennials are undoubtedly a forthcoming force in the real estate market, however most of the generation is not quite ready to buy. Whether they are uncertain about the market, their jobs, or life goals, as of now they are still riding the sidelines. Additionally, for younger singles it often makes more sense to rent and invest in higher risk investment vehicles in search of greater returns – since they don’t have as many responsibilities weighing on them presently. Add all of that up and what you have is a huge renter pool, who are driving up rental prices buy staying out of the market – but that’s a double edged sword. The same way the buyers have a certain strict tolerance when it comes interest rates, the same can be said for gainfully employed millennials and rental prices. We must be at or near that tolerance, or intolerance, level because everything I’m looking at projects that 38% of renters are going to be buying up real estate in the next 24 months!
Between millennial projections and renters alone, the numbers are impressive! These are segments steeped in potential, and it’s your job (both for yourselves and for them) to go out and find them. Contact anyone and everyone that you know who falls into those categories and light a fire under them. Assure them that the market is stable and fertile, and that you are what they need to close a sale successfully.
So, what does this mean for the current state of the real estate market? Will there be a crash? Will there be a boom? Well, everything I’ve looked at says that properties will list at market value and things are set to stay the same for the next two years, at least. Even though the industry is showing longer transaction times, this only proves that we need to practice and preach patience to our clients. Don’t promise them anything you can’t absolutely deliver. Don’t give them unrealistic expectations, especially as far as time frame goes. That will only lead them believe you are incapable as an agent if/when you are unable to deliver. Additionally, inform buyers that if they want to get in the game, they want to get in now, while interest rates are still low and while prices aren’t being driven up so high that properties are not worth their price tags. The key here is to show that property prices won’t be falling, but interest rates will be rising. So, if millennials or renters are projected to purchase within the next two years, then why not now? They need to think about how much they will spend on interest at higher rates in two years, who they might be bidding against then, and how much their property might have appreciated in that timeframe.
The numbers at hand suggest that the real estate market is safe. This market is for you. This is a new type of market for many of you. You’re venturing into uncharted territory, but the underlying numbers reaffirm the fact that this market is not the big bad wolf that it’s being painted as; however, it does means that you will have to dust off your skill set and actually use it. It means that you must maintain consistency—what you promise, you must deliver. Stay the course, don’t get sidelined, but be dynamic and fluid. Be open and able to shift and adapt to any changes in the market. You may have to get creative, and that can be scary to some of you, but the real estate market is changing all the time. Just like technology, the economy, and generations, the market is different every day. There is opportunity all around us, especially currently, because this is when lazy agents fail and good agents gain market share! We need to use every advantage we have so that we can keep propelling ourselves, and our company, into the future. Encourage clients and potential clients to take advantage of opportunities now.
The only catch here is in sentiment and momentum – if people believe the market is going to fail and panic selling begins, inventory will return, and prices will fall. It will be a very sad self-fulfilling prophecy!
You joined the JohnHart team for a reason. Utilize all the special and unique opportunities we have to offer, and know that you are never alone here. There is always someone here to help you through it, talk you through it, or help you refocus your energy and come out more confident, successful, and stronger, than you could have ever imagined. I hope you find all of this encouraging and that you use it to set the tone for the rest of the year – because we can coach you through it, but we can’t force you to do it! The desire for success must be met with action, or it won’t be achieved. Let’s do this!
After working with, and for, many different real estate firms, it became apparent to Harout that there was a major disconnect between what consumers needed/wanted and the service that was being provided to them. It was upon this realization that Harout founded and opened JohnHart Real Estate; and as the CEO/Principal Broker he has continued to break from the norm and redefine real estate with an insatiable appetite to give his clients the service and attention they deserve.
I agree with your assessment of the market as the stats show that we are not near a market correction in fact we are for the first time in a normal Real Estate market that almost never happens here. Rates are returning to where they should be, home prices are stable,consumer confidence is really good,inventory is low around a 2 month supply but for some reason buyers are really picky and I think that makes most agents feel that we have hit the top of the market and are now coming down. I hear this from well seasoned agents and new ones alike and I don’t get it, we don’t have the run away train of sub prime lending and totally unrealistic double digit increases in values like the early 2000 s. I am excited about this market, for some reason I am calm and positive with this market and I think that the pause in the market from July to now has many people scared that the sky is falling.
I am talking to my sellers about what their 3-5 year plan is and to my Buyers I am telling them this is a great opportunity to buy as there is a slight lull in the market now that I don’t think will last.Bring on the buyers, they need a pro that is calm!
We also agree with your assessment of the market as the stats show that we are in a normal Real Estate market. When we bought our first home in the 1980s, the interest rates were 12%, talk about high interest rates… so 5% interest rates are so inexpensive.. Rates are returning where they should be, home prices are stable, and we see buyers out shopping more lately.. We are excited about this market and keeping calm and focused and consistent with our sellers and buyers. Continue to follow up. They may not be ready today to think about moving,, but when they do, you want to be the Realtor they call. We also tell our buyers this is a great time to sell and buy! Bring on the selllers and buyers, they need us pros. Thank you for sharing your fantastic assessment! the New Rossmoor/Seal Beach team!