Preparing Now for the Next Recession
The real estate market is changing after the fast-paced and frenetic last few years. Inflation is rising and many analysts believe there will soon be a recession. But if you take steps now to prepare, you will not only defeat inflation, but you will also defeat the recession.
Housing Market Update: Less Buyers, Inventory but Demand Still High
There are now fewer buyers due to mortgage rates rising, yet there is still a high demand for housing from qualified applicants. And when homes become available, those buyers are ready to act immediately.
Although unemployment is still low and wage growth is rising, inflation is having a significant impact on the “American Dream” of owning a home.
Buyers may find when they run their numbers that their monthly payment may be more than 50% compared to what it would have been a year ago.
As an example, a house in 2021 with a $400,000 loan at 3% rate would have a monthly payment of $1,686. In 2022, the same house, a $480,000 mortgage at a rate of 5.7% would have a monthly payment of $2,786, an increase of 65%.
Agents who want to succeed in this changing market should view it as “a long-term strategy.”
Instead of pressuring clients for a quick sale, causing potential disgruntlement, consider their long-term interest. In doing so, you will steadily build your database of potential clients over the years.
Dr. Lawrence Yun, chief economist for the National Association of REALTORS®, feels that mortgage rates are currently near their peak and that if oil prices stabilize and unemployment figures stay low, the next recession will have a “soft landing.”
Become a Recession Buster!
Follow Buffini & Company’s four pillars of a successful business — more referrals, more sales, more net income and more time off – to succeed in any market:
1. More Referrals
- Strive to increase the number of referrals you receive on a weekly and monthly basis.
- Emphasize superior customer service. Many businesses got by in recent years with shoddy customer service because of the demand for their products and services. They will not be able to do that in a recession. If you provide great customer service, your clients will tell their family and friends. If you don’t, they will leave bad reviews online.
- Remember, just because something is efficient (such as email or social media platforms), doesn’t mean it is more effective. Face-to-face interactions are still best.
- Consider throwing a party! After the last two years, people are anxious to connect. They want to get together. And many still want to buy a house!
2. More Sales
You need to grow your business at a higher rate than the rate of inflation. For example, if inflation is at 8%, aim to grow your business by 10%. If you can defeat inflation, then you can defeat a recession.
Buyers may be upset to hear that rates have been steadily rising since they were at 3% just a year ago. Remind them that rates were artificially low over the last two years but historically have been much higher in the past. Stress to your clients that they should not give up their dream of buying a home. As Yun said, there is now less competition so if they qualify, they may get the house they want. And they may want to think about applying for a 5 or 7 year fixed-rate mortgage and then refinancing when rates stabilize.
The Impact of Millennials
According to a Bank of America report, Millennials are now the nation’s largest adult generation. Forty-six percent of them are seeking their forever home while 29% are seeking a starter home. Millennials are willing to purchase homes sight unseen, fixer-uppers, houses over market price and purchasing at their maximum budgets as well as over the median price.
3. More Net Income
You must save, grow and invest to achieve more net income.
Set a goal of saving at least three months for your personal reserves and six months for your business reserves. Tighten up your expenditures and see where money may be leaking out, such as forgotten subscriptions and services you no longer use.
According to the National Association of REALTORS®, the median average salary of an agent is $33,800 annually. Buffini & Company One2One-coached members, earn on average, $369,370. That’s 11 times the average!
You cannot grow unless you invest. Look at your portfolio and make sure there is diversification. 25-40% should be in real estate.
4. More Time Off
For the last two years, the world has been hectic. Your business has been hectic! Time off is important for recharging and avoiding burnout. But you don’t need an extended, expensive vacation. Take mini- breaks, long weekends and staycations.
If you aren’t going on a long trip, treat yourself to first class accommodations versus third class. Book the nice suite at the hotel!
Become a Trusted Resource
Your job is to become a knowledgeable, trusted resource for your clients and provide them with clarity regarding the changing market. Stay confident and positive so you can help your clients stay that way too. And keep a long-term perspective. Because in spite of all the changes, it will be a good market!