Selling Through the Cycle

From years of observation, it is clear that phases in the real estate market can be tracked by changes in inventory levels, home prices and number of homes sold (sides) year-over-year. The ‘initial phase’ of a real estate recovery is indicated when three essential trends emerge.

  • Inventory levels begin to fall, implying an initial increase in consumer demand
  • Prices still have downward pressure as foreclosed and other lower-priced inventory sell first
  • Sides flatten and even increase, as consumer confidence returns and more homes sell

With this information in view, please note the table below showing closed sales and average price in September and August 2009 vs. one year ago. You will observe that closed sales mostly flattened in August and increased in September year-over-year in all regions except the Midwest, while home prices showed some stabilization. It is important to note, however, that three of four regions in the U.S. actually experienced a year-over-year increase in closed sides during September.

Sales

Experts expect continued improvement through 2010

Based on a survey released by the National Association for Business Economics, home prices are expected to rise by 2 percent next year and 80+ percent of the economists surveyed by the NABE think the recession is over and recovery has begun. However, economists do warn that expansion will be gradual due to persistent unemployment. Additionally, sales of existing homes will rise by 11 percent in 2010, [Source: Associated Press, Alex Veiga (10/13/2009)] and Jay Brinkmann, Chief Economist of the Mortgage Bankers Association, recently predicted that sales of new homes will climb by a strong 21 percent in the new year. Finally, mortgage rates are expected to rise to 5.6 percent (low by historic measures) by the end of 2010, yet mortgage applications are still expected to increase by 12 percent [Source: Associated Press, Mae Anderson (10/12/2009)].

What can real estate professionals do to prepare?

All in all, the picture is clear. Recovery is upon us and the time to prepare ourselves for a stronger real estate market has arrived.  So what exactly can real estate professionals do in order to put themselves in the best position for success? Below are just a few suggestions to get the thought process going.

  • Your confidence level is a self fulfilling prophecy – Keep in mind that market confidence is brought about largely by professionals bringing timely and accurate information to consumers. Your clients need your good guidance in order to navigate these positively changing waters.
  • Consumer confidence doesn’t change overnight – Remember to be patient with one another. After all, we have truly been ‘through the mill’ over the last few years and changing consumer attitudes takes time. It is also true, however, that consumer awareness of trends often lags behind market realities, so some guidance now can help them make timelier and more cost effective decisions.
  • Get more than one “no” from a mortgage company – Underwriting rules have tightened causing some mortgage applications to be denied. But nothing is preventing a determined buyer from seeking another opinion on their credit-worthiness. So don’t give up!
  • If a property doesn’t appraise, look to get a second appraisal – In markets like the present one, banks and appraisers sometimes over react to the downside. Real estate professionals and consumers alike should therefore not hesitate to ask “why didn’t this appraise?” Open communication is the key here.
  • Don’t hesitate to write offers – Resist getting tied up by traditional thinking and just make the offer! It’s kind of like baseball… once the ball is in play, anything can happen.
  • “Do something today (that you did not do yesterday) to enhance your tomorrow” [Dominic Sacci, GM Better Homes and Gardens Real Estate Wilkins and Associates] – This statement sums things up beautifully. Positive change is the key and we should all expect business techniques to keep evolving. So get comfortable with change, embrace the new and watch the magic happen.

Here’s to your success!

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