What's Causing the Housing Shortage?
And welcome to Mike Ferry TV the week of May 30th. I want to say thank you. I know Tony Smith has done a lot of these with me and I know the two of us appreciate you taking the time out of, in most cases, a very busy schedule and busy day to spend a few minutes with us on Mike Ferry TV.
So, we talked last week about ... where is this [real estate market] going? What do we see happening in the near future? I gave you several thoughts about that.
Today, we're going to look at some of the causes of the [housing] inventory shortage, because it's no fun. It hasn't been fun, especially for all the great agents like many of you that are working with Buyers. I mean, it's been a very, very, very difficult and challenging time.
Those of you that have the insights and the abilities to list property have been in a little slice of heaven until you get five or six or more offers. And then you've got to figure out what's best for the Seller and who's the best Buyer for that transaction.
So, it's been a challenging time, but there's some very specific things that have been going on that have caused the shortage of [housing] inventory to take place. And it is in most cases continuing and it looks like it will continue being a shortage until the end of this calendar year. We hope it breaks. We hope it changes, but not very likely.
Reasons Why There Is a Housing Shortage
So, there's many, many reasons why [there is a housing crisis].
But the first thing I've written down is this: pre-COVID, when I would do a seminar any place in North America or, in this case, the world. Now, I would say to an audience, “how many of you on a regular basis or at least occasionally work on trying to get a listing?”, and in most cases, 40% to 50% of the audience would raise their hand, which was always exciting, because I've always thought that the skills of a Listing Agent, although not dramatically better than the skills of an agent, the works of the Buyer are totally different. And if you think about what I said, you'll know that I'm right.
So, I would ask an audience, “how many work on listings?” 40%, 50%, raise their hand. Since COVID ended, the last seven, eight months ago, for most of us. I'll ask an audience how many work on listings today? 5%, maybe 8%, sometimes 10%. The sheer number of very few people working on taking listings is what is causing part of the shortage that we have today.
If we can get you to participate, to even think about participating and listing property, you're going to find listings.
I wrote down there's too many greedy sellers in the market and that of course, is causing the shortage also.
You know, good, smart agents, like most of you, you know, as property is worth 550 and the Seller wants 850 for that property. And you know, and I know it's just a greedy Seller and a lot of good agents are walking away from this kind of listing.
But new home construction cannot keep up with demand, which is another big factor. We know that new homes create residential resales. So, what we're dealing with today is a land cost that is very high for a builder. Construction costs are very high and the delay in getting people to work at these types of jobs is very challenging. So new home construction in most of the US is down and that new home construction is what causes residential resales.
I also wrote down there's too many off-market listings, too many pocket listings, too many coming soon listings and too many sold before submission to MLS. These are distorting the numbers. I believe there is a lot more listings out there than what we probably see. And even though most of us belong to mandatory MLSs, between the pocket listings, off-market listings, coming soon listings, sold before ever submitted, it's affecting what we're all seeing as inventory.
Folks, think about it this way. They’re projecting 6.5-6.7 million Real Estate transactions this year. Here's the blinding flash of the obvious question if we have 6.5 or 6.7 million sales. Don't we have to have 6.5 to 6.7 million listings to have the sales? And the answer is, “Of course we do”.
So, what we don't have today is really a shortage. We don't have excess. We don't have a lot of standing inventory out there because the Buyers are still buying it up. There's a lot of listings being taken. We just need more good people like you to start taking them, which will increase the inventory for everybody to enjoy.
I wrote down, we still believe that working with Buyers is easier and where, for goodness sakes, does it say that working with Buyers in this kind of a market is easier?
Now we know that Buyers are looking for a good agent and we know the Sellers are looking for a good agent. But Sellers aren't walking into open houses. Sellers aren't calling on marketing pieces. Sellers aren't working on seeing who's got the best branding. You know, they're waiting for somebody to find them or them finding and searching for that unique person. Could be you that works in that market that they live in so they can get their property listed with them.
So, we have to look at the next factor. The speed with which listing sell means we cannot accumulate into MLS excess of listings. Take MLS today and look at it carefully at how many homes are for sale.
There is a lot of them, and that's every place at all times. But when we look at that, we then have to look at the fact that, why is the [home] inventory shortage so common to us all?
Agents are sold on believing that marketing, branding, social media and doing videos will get the Sellers to call them and they don't have to call anybody. Can social media get you a listing? Absolutely. Can branding and videos get you a listing? Absolutely. Do you want a listing, or do you want listing(s)? And I think the answer is “You want listings”. You know, you want to take 20, 25, 30, 50 listings a year. You're going to have to do something besides making videos to get people to try to call you.
I wrote down next our database is too small. We know that one of the strengths of a Listing Agent is a database that is active, that they're talking to, that they're updating on market conditions all the time. How big or small is your database and is it big enough to create 5, 10, 15, 20 listings a year? Start building your database.
But also, why is the [housing] inventory so low? Teams are reducing inventory. Well, Mike, how could a team reduce inventory? Here's agent A, good agent, very well respected in town, decides to build a team of five showing agents working for that man or woman. If we didn't have the market we have today, those five agents would come into the business and go to work for a Broker, like your Broker, and start looking at how to take listings.
Today, they're recruited into teams because leads are passed out. And the leads that are passed out are Buyer leads. Do we need more Buyer leads today than ever before? I think the answer is, “No”.
But also, we have to understand that the next reason why the inventory is so low, we simply do not prospect enough or talk to enough people to create a listing. Watch. Real Estate has always been and will always be a numbers-oriented game. And if we're not talking to people all the time, guess what? We're not playing the game.
What To Do When There Is a Housing Shortage?
So, what's the solution? I wrote down three things.
Call your database and talk to them. Give them viable information about the marketplace. You know, stand out as being a real, knowledgeable, professional agent with the database. So, if they're thinking about selling or referring to one of their friends, you're the one to make that happen.
But I also wrote down second solution to this problem of inventory. Start or keep building the number of names in your database. You know, you need to have 300 to 400 names to even make this thing work on a regular basis.
Then I wrote down third, which everybody goes, “Oh my gosh, there goes Mike Ferry again on prospecting”. Try talking to 8-12 people per day, around all of the transactions you have.
And what would I ask you to do that? Because people are talking about Real Estate all the time. It is the most common conversation. A husband or wife drive out of the driveway to go to the supermarket, they see one of your signs and the conversation is almost always the same. I'll bet our home is nicer. I wonder why they're Selling. I bet we could get more than they get. I wonder if we should be talking to a Real Estate Agent. Maybe we should call the agent on that sign. Or they'll be talking to you because you're calling around the transactions you have.
So, I'm going to ask this question. Are you planning in July to attend our Superstar Retreat? Call our office number 1-800-448-0647. I normally don't advertise anything on Mike Ferry TV, but we're going to have a very large, very exciting, very listing driven retreat in July in Las Vegas at that beautiful New Caesars Forum Convention Center. Hopefully you'll join us. But in the meantime, keep watching Mike Ferry TV. Keep learning, keep growing and keep listing. Talk to you next week.