How To Handle A Normal MarketNEIL BADA
Welcome and good morning to Mike Ferry TV. It is the week of July 11th. Boy, the year is going by quick and as what I said to all of our clients about ten days ago, if we were to treat July 1st as New Year’s Day and we got a do over for the next six months, how would you do? You know, we’ve gone through an interesting transition. We’re transitioning into what I refer to as a “normal market”. And of course, the problem we have is the biggest percentage of all Real Estate people have never been through a normal market, because if you started in Real Estate really after 2012, what we’ve seen is this type of a market for many, many years and that has now changed. So I wrote down a question, “What changes have taken place and what can we expect over the next, say, 60 to 90 days?” So, I guess the biggest change is the expectation that this is not a bad time coming up. This is not a bubble bursting. This is not a Real Estate recession. This is just going back to what we would refer to that are veterans as a normal period of time. Listings don’t always sell. Sometimes Buyers change their minds. Interest rates fluctuate. These are parts of a normal market. And I think if we understand the word “normal market”, we can make this transition that we’re going through a little bit better for ourselves and more importantly, better for the customers. So I’ve written down a list of things that are taking place or have taken place over the last, say, two and one half to three months.
And if we think about these things, and then I’m going to ask you to consider writing them down, probably typing them up on your computer, printing a copy, and on every presentation with a Buyer and Seller, give them a copy of the changes taking place and be prepared to go through and explain each of these changes because they affect, of course, the prices of Real Estate, the level of activity on a listing that you take and what’s going to happen over the next three or four months. So the first thing that we’ve seen take place and a lot of people don’t want to admit this, meaning Real Estate professionals … The days on market has not only extended dramatically but is continuing to extend and it’s going to continue to extend for the next three or four months. Days on market is a big determining factor on pricing with the Seller because the Seller says, (if today is July 11th). I need to be in San Diego and they live in St Louis by September 15th. Well, if they price it 5%, 8%, 10% over what is your suggested price … How long are they extending the days on the market and delaying their ability to move forward? So days on market is extending and has extended dramatically. A couple of the cities here in the United States, you know, they were going through trauma 60 days ago. “Our days on market was 9 and it went all the way to 15. What do we do?” It’s just called life in the big city.
The second thing I wrote down that the price reductions on listings are more in play than we have seen in probably two, two and a half years. And then I wrote down what listings do you have that probably need a price reduction on them today if we expect to get them sold? So this is a two-edged sword. I’m going to use the fact that price reductions are in play because if you start tracking your local MLS … I talked to a very significant Broker from the Midwest on Tuesday of this week excuse me, Tuesday of last week. And the broker said, “Yeah, we’re running about 50 price reductions today through MLS. And yesterday we had over 500”. I’m hearing this almost every day now. You’ve got to get the price adjusted. And that is part of going back to a normal market. Third thing I wrote down, the inventory is growing week by week nationwide. Now I know there’s still a couple of very hot markets. You know, a good part of Florida is still very strong. Some parts of Idaho are very strong, but most of the country inventory is growing. And there’s nothing better for a Real Estate market than having a good amount of properties for sale. It calms the market down. And the next thing I wrote down, it’s a good change inventory because the Buyers have more choices than they’ve had in the past. So the advantage of what’s taking place in a normal market is the “frenzy” that, “Oh my gosh, I’ve got to do something right now, or else I got to write an offer above fair market value to be accepted”. That whole “frenzy” is disappearing because as inventory increases, the next thing I wrote down, prices start to level out, and in many cases prices are starting to drop a little bit, not dramatically. Let’s face it, we did reach a high point in most parts of North America on pricing.
The next thing I wrote down is there are fewer Covid Buyers in the market. And that was a big part of what happened from June of 2020 through probably January of this year. I don’t know how many Covid Buyers were in the market. Nobody knows the answer. But let’s use the example of a million Buyers coming into the market. Most of them either purchased a home and or purchased a bigger property than what they had in the past. Or they changed their mind and decided to get out of the market completely. Well, let’s say that cut 10%, 15% of the market out. When there is a reduction in the number of potential Buyers, there’s a reduction in, of course, the number of offers. And the next point is there are fewer offers per listing now than we saw six months ago. And in many cases, a lot of the people have never understood that it is not normal to take a listing and within three days have 20, 25 offers. That is not normal, that is very abnormal and that has started to diminish very quickly for all of us. But the other thing I think we have to understand and is probably one of the harder things to understand, is interest rates are going to continue to go up and down and fluctuate, but we’re unlikely going to see 3%, 3.5% again in the next 12 to 18 months. So getting used to working with Buyers and Sellers and understanding that at 3%, a Buyer that could afford, say, a $600,000 home at 6%, they can only afford probably $400,000, which many times withdraw some out of the market, which builds the inventory, flattens out the prices. And of course, the prepared agent like yourself has a better chance of taking those listings. Expired Listings withdrawn … some canceled are back in play. If you think about six months ago, how few listings were expiring. But today we’re seeing Expired Listings and we’re seeing a higher number of Expireds, which for those of you that work the Expired market, it’s a slice of heaven for potential listings, okay?
I also wrote down the number of showings on new listings has started to decline. You know, you took a listing six months ago and in 24 hours if you didn’t have four or five offers, you had showings lined up. And the biggest job was being an order taker for what was happening in the market. That’s pretty much gone. Back to a normal market. And the number of deals falling apart is increasing and that’s because of a combination of high prices, higher interest rates. Which means people are paying more money for properties than many times can afford. And the lenders are not looking forward to going back to what we went through in 2009, 2010, 2011 and 2012. So they’re putting a little bit more tightening to the mortgage financing side of these transactions. So, the transactions are not appraising for what we would wish they were. So therefore, some of the transactions are falling apart and that’s called “normal”. So even though we don’t like to think about the fact the market is changing, we always wish it could be all of 2021 and the first couple of months of 2022. It’s a cyclical market and what goes up must come down and what goes down will come back up. We can never project the length of the normalcy the market’s going through, but I would say realistically, we’re going to experience what we’re seeing taking place today in July of 2022 through at least the first quarter of next year, which for a lot of you, you should be applauding these changes … Because it’s going to drive a lot of the non-professional people back out of the business and they’ll be working at McDonald’s again, which is a good place for some people.
But for you as a professional, learning your skills, learning your scripts and dialogs, building your confidence, taking these kinds of ideas and saying to a Seller, “Here’s the reality of the market. To a Buyer, here’s the reality of the market”.
So, I don’t know what you’re doing, on July 19-22, we’re going to do our annual Superstar Retreat back to where we used to do it. Pre-Covid, we’re going to have a huge crowd at the Caesars Forum, beautiful new convention center. The program itself is probably one of the strongest I’ve ever presented because I’m going to present 23 different skills that I believe an agent needs to learn. I’m going to give four or five very strong support points that you can use on each skill to develop that skill within yourself. And then I’m going to invite onto the stage, on each skill, an agent that uses that skill to build their productivity and how they do it, and we’ll interview them for 15 to 20 minutes. It’s going to be a very interactive Retreat. We hope that all of you are there. Go to our website, MikeFerry.com. Press the Retreat button, get registered and we will see you then. And as a result of that, our next Mike Ferry TV will be after the Superstar Retreat. Enjoy your time. If I get to see you at the Retreat, look forward to it and if I don’t use the ideas, let’s go out and do some business. Thank you.