As we dive into 2023, the days of lockdowns and double masking may seem like a distant memory — but the long-standing implications of the pandemic remain front and center. You only need to look to the latest real estate shift for proof.
The past couple of years have brought a red-hot real estate market in many areas across North America. As the market cools, many real estate agents are left wondering what this means for them and their clients.
Increased inventory coupled with higher mortgage interest rates are making both buyers and sellers anxious. Adding further fuel to fire, fears of a looming recession are making life as a real estate agent even more challenging.
If you’re wondering how to stay ahead as the market changes, this one's for you.
We reached out to a panel of real estate experts from around the country to share proven tips for navigating the latest real estate shift. Here’s what they had to say.
First, what’s causing the current shift in the real estate market?
Let’s start by breaking down what these latest market shifts are all about — after all, understanding the situation is half the battle.
According to Nik Shah, CEO at down payment assistance platform Home.LLC, “Mortgage rates have doubled and monthly mortgage costs have increased 60% in 2022. While housing activity has plummeted, home prices are still up 13% year-over-year. Predictably, home buying demand has fallen off a cliff.”
Sam Sawyer, Founder & CEO of Pinnacle Realty Advisors adds, “We are in the midst of one of the craziest and fastest shifting real estate markets of the last 40 years. The pandemic-induced buying frenzy led to massive inventory shortages all over the country, pushing prices to record levels. There is a bit of ‘shock’ in the system with things changing so quickly.”
Shock in the system is right.
But what exactly is changing? Let’s break it down.
During the pandemic, mortgage rates were exceptionally low and an increase in demand led to a surge in the housing market. However, as the heyday of the recent housing boom comes to an end and prices begin cooling, buyers have begun pulling back — as a whole, they’re less willing to participate in the kind of bidding wars we’ve seen in recent history.
Additionally, with mortgage rates higher this year, some sellers are starting to lower their sales price. Others are waiting for interest rates to drop so they have a better chance of selling at the price they want. The result is that in many markets, there simply aren’t enough houses selling at the price point sellers want. And with increased mortgage rates, buyers often can’t afford to meet sellers at their desired listing prices.
The median-existing home sales price in October 2022 was 6.6% higher than in October 2021, according to research by the National Association of Realtors (NAR). Yet, the higher housing costs have taken a toll on would-be-buyers, as mortgage applications are at their lowest level in 22 years, according to the Mortgage Bankers Association.
And the situation with interest rates is just as volatile. A year ago, the benchmark 30-year fixed-rate mortgage was 3.24 percent. This past October, it hit a 20-year high at 7.08%.
With numbers like this, it’s easy to see why these shifts are happening. Question is, what can you do about it?
So how do you survive a shifting real estate market?
Any experienced agent will tell you rock-solid customer service is the best way to navigate any market shift. But what steps can you actually take to set yourself up for success?
Here’s what the experts had to say.
1. Understand the trends driving the shift
Real estate was one of the few industries that came out ahead following the pandemic.
As people spent more time at home than ever before, they naturally wanted to invest in having a nice space. With this change, inventory dropped and competition was high, making the Covid-era real estate market ideal for sellers. As the market slows, the bidding wars that made headlines last year are now a thing of the past.
Understanding why this is happening will be crucial for helping your clients navigate this latest real estate shift.
By getting clear on the core drivers of the latest market shift, you’ll be able to help your clients understand what's going on while inspiring greater trust in your authority as an industry expert.
Make sure you take it a step further to really understand what’s going on in your specific market — it may follow similar trends, but it won’t be identical to what’s happening in other local markets. Maureen McDermut, a Santa Barbara & Montecito real estate agent with Sotheby's International shares, “Markets aren't ever ALL bad or ALL good. Learn your market and be the best you can for the clients you have.”
Do your research. Talk to others. Pay attention and take the time to understand what is happening and why it’s happening. This will put you in a much better position to respond to it.
2. Be proactive
In a cooling market, both buyers and sellers are going to be nervous.
Be proactive in identifying different options and scenarios with your clients.
“I find that the best way to be supportive and helpful is to be ahead of the game,” says McDermut. “We can usually see where the market is heading, so to be proactive instead of reactive will always put your [clients] in the best possible position.”
Proactively providing information for your clients helps them prepare for all the possible outcomes and further demonstrates that they can rest assured — you know what you’re doing.
“I always prepare my clients with a game plan that focuses on the best and worst-case scenarios. That way, if they want to ask for the top end of the market and there aren't enough offers, we can readjust.”
3. Manage expectations
As a real estate agent, you already know managing expectations is a major part of the job.
In a shifting market, prospects and clients will be obsessively watching the news, paying extra close attention to what their neighbor's house sold for, and likely making some apples-to-oranges comparisons that just don’t reflect the full story.
Florida-based Ian Langsam of Coldwell Banker shares that “It can be painful for sellers who missed their best window for getting the highest price for their property. They are often in denial. This is where your relationship with your client goes well beyond the data you present. When you've built trust, the client will take your expert advice for pricing.”
Nicole Beauchamp, Associate Real Estate Broker at Engel & Völkers in New York City, recommends that agents “explain what concessions they should be willing to make based on the market and [provide education] about pricing to be accurate when coming to market. Prepare them for the realistic time frame it will take to find a viable buyer and close, in a shifting market.”
Managing expectations with your clients about what will and won’t work today and how that may differ from what worked a year ago — or even six months ago — is critical to making sure everyone is prepared for the reality of the current market.
4. Don’t be afraid to over-communicate
When you’re in the business of serving clients, over-communicating is everything — especially in a shifting market.
During a market shift, it’s crucial to actively contextualize the situation with your clients — especially if they are clinging to old or incomplete information.
Alex Shekhtman, LBC Mortgage CEO & Founder, shares that “Sellers may be worried about getting their home sold in a timely manner or getting the best possible price for their home. In these cases, communication is key. Agents should keep sellers updated on market conditions and help them to develop realistic expectations for their home sale.”
Tony Mariotti, CEO & Founder of California-based luxury brokerage RubyHome, adds that updating sellers frequently about nearby homes can be a great way to further your relationship. "There should be a continuous feed of market data (days on market, prices, and inventory) and expectation setting. The greatest risk is leaving a seller in the dark about market activity.”
5. Nurture your relationships
As agents, it’s critical to remember that the relationships made with clients are not based on a single transaction.
Eric Bryant, EVP of Sales & Marketing at Openn North America Inc. shares that, “Agents should nurture relationships with homeowners long after they have moved into their home. Once a property is sold, that is really just the beginning of the relationship between homeowners and real estate agents.”
While it can be tempting to double down on new leads in a cooling market, continuing to nurture the relationship with existing clients can go a long way in proving that you are a trusted resource here to guide them — and anyone else they might know — through the next chapter of their real estate journey.
6. Be understanding
Taking the time to understand where your clients’ hold-ups are, or why their expectations are the way they are, can help you serve them better.
Remember, the media often focuses on clickbait. Understanding what your clients have read and why they have certain beliefs on how things should go is key to building trust in a shifting real estate market.
By taking the time to understand where your clients are coming from, you’ll also have a much better feel for which areas of the market are most concerning for them and will be better prepared to put that into context.
Shekhtman of LBC Mortgage says, “It is important to remember that they may be feeling extra pressure during a market shift. In addition to finding the right home, they also have to worry about getting a good deal. As such, agents should focus on providing calm and reassurance. They can do this by keeping communication lines open, being available to answer questions, and providing objective data and market analysis.”
7. Don’t be afraid to try new things
Believe it or not, a shifting real estate market is the perfect time to venture outside your comfort zone.
“If you've been considering different marketing tactics like building a website, running pay-per-click ads, or social marketing, now is the time to make a move,” says Mariotti of RubyHome.
“Deals are fewer and harder to come by, but the market has not ground to a complete halt. There are just fewer fish, so now is the time to cast a wider net. Take risks. Spend money. Not only will you find clients, but you'll be building your brand and strengthening your position for the next up-cycle.”
Take advantage of the cooling market and the “down-time” that comes with it to build up your brand and build stronger relationships with existing clients.
Remember, the real estate industry is cyclical by nature. This likely isn’t the first market shift you’ve experienced and it certainly won’t be the last. So take this opportunity to try something new. Who knows? It might set you up to be well ahead of the game when the market heats up again.
What this means for 2023 and beyond
The good news is, many of the experts we surveyed believe a brighter real estate market is ahead.
“The market of the last 18 months was an anomaly in the grand scheme of things with record transaction volume and pricing,” explains Sam Sawyer of Pinnacle Realty Advisors. “The housing sales this year are only slightly down from other years. 2023 will be a market where inventory levels rise, interest rates chill out, and consumers generally feel more comfortable entering the market as we move through the year.”
Chill interest rates and comfortable clients? Sounds good to us.
But no matter what happens in the near future, it’s important to remember that real estate cycles are — and always will be — part of the game. Turbulent markets can create major opportunities for agents and firms to grow their business, attract new clients, nurture existing ones, and even try out exciting new strategies they haven’t had time to test.
Whatever your plan for navigating this latest real estate shift, know that you got this. And if you’re looking to work smarter in the new year, Follow Up Boss is here to help.