The 5 Causes For Low Inventory in Real Estate

Welcome and good morning to Mike Ferry TV the week of July 3rd and of course tomorrow for our US friends as the national holiday.

“I think most of them are solvable by the work ethic and work effort that you and I put in as Real Estate professionals”

We hope you enjoyed that time with your family and be safe during that holiday itself. We’re going to look today at what has caused this continuous low inventory that really a good portion of the world, starting with North America, has experienced for quite a long period of time. And it really started probably just about the same time the pandemic, which we all unfortunately experienced, really got going strong. So let’s take a look at the 5 things that I think have caused this low inventory real estate 2023. And I think most of them are solvable by the work ethic and work effort that you and I put in as Real Estate professionals.

Number 1: The Post-Pandemic buyers are gone

So no order of importance. The 5 causes, I believe, of the low inventory. Number 1, the post-pandemic buyers are gone. I hear all these estimates that anyplace from 500,000 to 3 million potential buyers decided to buy Real Estate because of the pandemic. And that was understandable. People were looking for privacy, they were looking for safety, they were looking for security where they wouldn’t be exposed to that terrible virus that was going around the world. Well, the biggest frustration we have today is those buyers have all bought and they bought up all that excess inventory we’ve always had. So let’s just say, for example, that if in a normal period of time, we would have 3 to 4 to 5 months of excess inventory on the market for sale, that has pretty much disappeared. Although, in most parts of the US and Canada today, the inventory is growing again. Now, not to the point it has been, but instead of 4 days on the market, maybe it’s 34 days on the market. So the post-pandemic buyers have bought. That is probably one of the biggest factors.

Number 2: Interest Rate Changes can housing prices to fall

Number 2 is obviously June, July of last year, 2022. The interest rate change made a big difference to people listing their homes for sale. Somebody bought a home, say, 6 years ago. They paid $400,000 for it and they had maybe a 3.5, 4% loan on that property. They find a house today, it’s $650,000. They want to use their equity, move it forward. But their personal income has not gone up in proportion to the prices and the interest rates, which have in most cases doubled. So so many of the potential sellers that you and I would work with, we can’t work with today because they don’t qualify and they don’t want to move their payment from “x” all the way to “z” in one stroke. So interest rates have caused the inventory to drop also.

Number 3: Team building has reduced the total buyer’s agents reducing inventory

But the third reason why the inventory has dropped dramatically is this entire concept of team building. And I’m a big supporter of people building a team because it’s a great way to bring a group of people together. But generally speaking, let’s just take Agent A who’s done 25, 40, 50, 75 deals a year, of which the majority of those deals come from listings taken, listings sold. And that agent then decides to build a team and they hire an assistant on the way and then a second assistant and they hire 2 agents and then they start purchasing some leads from whatever source they want to purchase from. And then they get 5 agents and 7 agents working on their team. Those are being known as buyer’s agents. And some of you might be those buyer’s agents. Your job is to take the leads being furnished, convert them, sell them as a buyer’s agent. The problem is, as the team grows, that listing agent who started the team does less and less personal production because of the leadership responsibilities in running a team. We have fewer people listing property today than we’ve had in the past. If in the past, let’s say 20%-25% of all the agents actively worked on taking listings, today, it’s probably 5% to 10% of the agents. When you have a lot of great salespeople who are listing agents convert to a big team. Total listing transaction count is going to drop, period.

Number 4: Agents are not prospecting enough

The fourth reason why the inventory is so low and nobody wants to hear this is agents simply do not want to prospect. When you have as many agents representing buyers today as we have today, prospecting is not something that they are comfortable and or want to do. So we have to furnish more leads for more people, which simply diminishes the ability to be out prospecting for potential sellers. So what I’m telling all the team leaders is if you have, say, 5 or 8 or 9 buyer’s agents on your team, let’s convert over the next 6 months, 3 to 4 of them to be strong listing agents on your team, which would be a partial solution to the problem.

Number 5: Lack of building a database is crashing total listings

But then the fifth reason why so many listings in terms of our listing count has dropped is I wrote, too many agents did not during the last 12-18 months work their database as effectively as they should or in many cases would not work and talk to the people they knew best. Probably if an agent is doing 25, 30, 50, 75 deals a year, it is not uncommon for 40% to 50% of that total count to come out of the database. So therefore, if you have a database, which every agent has a database, although they may not recognize it as a database, people that are past clients and centers of influence, if you’re not working that database on a regular basis, there are listings being taken by somebody out of your database. It is the number one method of prospecting in terms of building productivity and the number one method of getting listings. So we have to work that database. So what’s the solution to all this? Try talking to more people each day about the opportunity that you can offer them on helping them get their home sold. Because we don’t know when will housing inventory increase in the future.

You’re a great agent and even if you’re a new agent, you are going to become a great agent. And great agents know how to list property. So if you want to know more about watching or listening and learning how to list property, keep watching Mike Ferry TV and enjoy the experience. We will look forward to talking to you next week and again for our US customers. Have a great 4th of July. Thank you.