It’s time to start putting a wrap on the Summer 2022 real estate market and review what we've experienced over the last few months. The market has shifted dramatically and will move into a new chapter of the shift over the coming fall months creating opportunity for the prepared, focused and consistent real estate brokers. For those that have been in the industry for several of these real estate cycles, we know that "Shifts Happen" and we also realize that opportunity exists. Let's focus today on the opportunities.
Before we look at the opportunities, I want to rewind to my June 13th episode MMPT #142 "Your Summer 2022 Market Reality Check" and see if some of what we discussed came to fruition over the past few months. Midway through the call, I came up with 6 points of "Here's What I Think I Know" and see if we were at least partially correct. Here they are:
- Living in the Midwest, I can tell you that we live for July, August, and September. I think you will see a shift in buyers’ focus from their current housing situation and, in fact, we're already seeing it. The buyers’ focus will shift to their social life and families instead of their housing situation. They will shift to a "wait and see" attitude hoping the inventory levels will improve giving them more options and better pricing. Fast forward 2 months and this has been the case, 100%. I think the refocus to personal lives was more dramatic than we thought it would be. Society took a major, collective "timeout" coming out of the pandemic and focused on themselves. In some cases, it was and continues to be a re-introduction to society. I'm hoping that all of you had a chance for some much-needed downtime this summer.
- There will be "panic selling" for sellers who waited too late to sell and now want to sell "at the top" of the cycle. You'll see more listings hit the market by those sellers that waited just a tad too long. They will have to be realistic to be successful in this cycle of the market. Fast forward 2 months: This too, was 100% true. Many of those "panic sellers" were not realistic on price, making transactions difficult. We’ll talk about this more in a bit.
- Cash buyers might have more leverage now than ever. Expect them to start throwing out "low ball offers.” Fast forward 2 months: Yep, couple this with unrealistic sellers and it's made for really difficult negotiations, transactions and re-trades. Buyers without cash have been putting in low ball offers.
- For a world class city, Chicagoland is incredibly inexpensive. Our market will be impacted differently from those that saw 70% to 80% and higher price gains. We may even start to attract buyers because of our cost of living. Fast forward 2 months: I am more bullish on Chicago than I was at the beginning of the summer, for sure. Chicago has its problems but in an inflationary environment it will be attractive to those looking for a relatively inexpensive world class city.
- The summer will be a battle between sellers and buyers both wanting leverage in the price negotiation. Sellers will want their multiple offers and be frustrated when they don't get it. The urgency for buyers has and will continue to drop until clarity is brought to the market. Fast forward 2 months: Yes, and I expect clarity to start to hit the market this fall as we get more and more sales data.
- We, as brokers, will need to navigate this market much differently. Those brokers that wrap their minds around it, study their hyper-local stats, and shift their execution strategies will have stronger businesses than before. In more challenging markets, there is a flight to quality. The consumer will seek out the well positioned, well prepared and professional brokers that have a strategy for a successful transaction. Fast forward 2 months: Estimates are that 500,000 to 1 million real estate brokers will exit the industry over the next 18 months, leaving less competition and improving the quality of the industry.
So, not a lot of big surprises here when we revisit my earlier predictions. What I was surprised about was the media's attempt to push the real estate market into a recession. This summer, I've had the opportunity to be a part of two presentations that Wendy Purvey, President and COO of Pacific Sotheby's International Realty, has given about the shifting market and how to navigate it. Her presentation starts with the negative media narrative and its desire for the "doom and gloom" headline. She goes on to discuss the need to keep our mind right, stay educated on the market and respond correctly with what is actually happening locally. She, like me, has been through multiple real estate economic cycles and agrees that any comparison to 2008 is just irresponsible reporting. Neither here nor there, it is what it is, and she reiterated the need to combat it with our own statistics as the professional, trusted real estate broker.
As the summer winds down, I’m taking a break from MMPTs for the next two weeks and will be back in your inbox on September 12th. Between now and then, I encourage you to revisit this list and all of the links to recent resources. Here are a few additional thoughts in no particular order of importance:
- Any market that follows 2021 is going to be considered "recessionary.” We needed the market to cool off for any chance of those buyers who needed financing and who were unwilling to waive all contingencies to have a chance. What we experienced last year was not sustainable. This normalization and stabilization of the market is a good thing. Please, move on from 2021.
- The media's job is to sell ad space first, report the news second. I read an article with the following headline: "7 Stocks to Sell Before the 2022 Housing Market Crash" written by Josh Enomoto on InvestorPlace.com (yep, I clicked the bait). That article headline was a "whoa, I need to read this, maybe he knows something I don't know.” His first sentence in his first paragraph after outlining the stocks to avoid was "While there are no guarantees of a housing market crash, investors may need to start considering sector-related stocks to sell.” And there you go, our clients are reading the headlines, not the content of the article. Beware: Clicks first, accurate reporting second.
- The "panic sellers" that have realized that they missed the top of the market that peaked this spring and tried to go to market this late spring/summer with no success will start to pull their properties off the market or go the rental route. In some cases their egos are too large to sell for less than their neighbors did 6 months ago. Make sure you have a real read on your sellers and their motivation for selling. You don't want to be out there hustling just to be a conduit to "test the market.”
- There will be an increased level of transactions once we have more data in individual markets. Buyers will feel more comfortable once they realize that the market is not going to crash 20% overnight. Sellers that need to sell will start to bring their listings to market. All of those buyers that were in the market last year are still there waiting and watching. People buy or don't buy any product based on emotion. Markets shifts are driven by a "herd mentality" where people don't want to lose and be embarrassed. If you buy and hold real estate, you will not be embarrassed.
- Talking Point: "Pricing is like a local weather forecast, Mr. and Mrs. Seller (or Buyer). We need to look at this like a local forecast not a national forecast. Let me show you exactly what is happening in your market." (Pull your hyper-local stats and know them better than your competition.)
- Inventory will remain an issue propping up pricing. We have a housing shortage and the scariest stat I've heard is that new home starts are down 9.6% year-over-year. We need them to build more housing units to decrease the 4M+ housing unit shortfall we have currently. The reality is that they are not building because of out-of-date zoning rules and the inability to predict construction costs. Have you priced a housing project lately? The prices are through the roof. No builder wants to spend a year building a property and then not make a profit. There is too much uncertainty. In my opinion, this supply issue is THE part of the real estate story to keep your eyes on. You should know this inventory number in your local market.
- With rents continuing to go up, look for the "kiddy condo" phrase to resurface. Parents, if willing and able, will start to assist their children at a more rapid rate than in previous years especially in a normalizing and stabilizing market.
- You might be seeing price drops in your market but are you seeing values drop? You must understand that they are completely different things.
What I would be focusing on for the remainder of 2022:
- If you eliminated all of the missed opportunities that you encounter on a daily, weekly and monthly basis, you would more than make up for the production you saw in 2021.
- On MMPT #146 "A Confused Mind Says NO,” I covered the need for us as brokers and advisors to shift to a more aggressive approach to educate. If your clients do not understand your hyper-local market, they will say no. Learn! Your! Hyper-local Market!
- Focus on building your Hot List, Warm List, Top 100, Referral Partners and local list of collaborative brokers. As you build your spring 2023 list of clients, you will sell a lot of real estate this fall and early winter. Who are your "salespeople" and make sure you've had either a "meaningful moment or meaningful conversation" with each.
- Eliminate commission breath. The best way to gain trust during market shifts is to encourage your buyers to walk away from a transaction that both you and the buyer do not feel good about. Relationship first. Transaction second.
- Read the book "Shift" by Gary Keller. It was written in 2008 to help agents combat a massively shifting market.
- Photograph as many exteriors as you can during the beautiful weather of September and October for your listings going live in the spring.
- Price ahead of the market based on days on market and absorption rate. More on that on upcoming MMPTs.
- Get your mind right if it isn't already. Many of you have reverted to bad habits this summer that need to be eliminated pronto. Some of you are feeling unsettled because you got used to that constant dopamine drip of action the past two years and many of you are detoxing off of it. Reframe that same dopamine drip "feeling" with activities that impact the "leading indicators" of your business (your plan) instead of the "lagging indicators" (results). Your results will improve if you focus on your plan.
- Elevate your skills. Are you attending the Ninja installation in October here in Chicago or another location?
- Take the next couple of weeks and review "your gains" since the beginning of the pandemic. Give yourself a pat on the back. You've grown a lot.
In all honesty, I love shifting markets that require a seasoned, talented and focused broker. I built a really nice business between 2008 and 2013 when we were coming out of a serious financial crisis. Buyers and sellers want authentic and committed assistance during these times. In 2021, it was hard for me to watch you get so beaten down by a market that required 60, 70 and 80-hour weeks to navigate. Remember, we are still in business because our chosen occupation is difficult and requires talented humans for any hope of a successful transaction.
Team, lean into the next four months. You've only got about 100 days until the holiday "no fly zone" starts with a lot of heavy lifting between now and then. "Shifts Happen" and shifting back to a normalized and stable market is a good thing. It will be a good thing for you, your significant others, your families and your friends. When I get back in September, the focus will be on 2023, soon to be the best overall year of your life.
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