What Does An Uncertain Market Mean for My Clients?
By Audrey Zheng
We discussed the impact of inflation, interest rates, and the economy in last week’s article. Here, we’ll break down what all of this means for your clients.
The last two years may have been full of determined buyers, willing to wage bidding wars and tolerate obscenely fast timelines, and assured sellers with sky-high expectations of half a dozen cash offers, $100K above asking. That is changing.
Today’s client is nervous about inflation, layoffs, the economy, and more. Elon Musk told his employees at Tesla that he has a “super bad feeling” about the economy and would be commencing layoffs, and JP Morgan Chase CEO Jamie Dimon has warned of an impending economic “hurricane.” In a recent FiveThirtyEight poll, a majority of Americans surveyed identified inflation as the most important issue in the country. In fact, consumer sentiment has hit lows not seen since the Financial Crisis, with only 13% of consumers believing that their income will outstrip inflation.
Meanwhile, the stock market has continued to waver, with most of the losses accruing to highly-valued tech stocks, cooling appetites even in the luxury segment.
Higher mortgage rates make buying a home more expensive, while high gas, food, and rent costs eat away at potential buyers’ ability to save for homeownership. At the same time, the unsteady stock market has eroded savings, and uncertainty in the broader economy makes consumers wary of large financial commitments. Buying a home is a tougher sell now than it was 6 months or a year ago.
What does this mean for your clients?
Consumer education is more important than ever. People are naturally risk-averse, and making large financial decisions when their 401(k) is down 20% and interest rates are spiking seems risky. Is real estate a hedge against inflation? Will interest rates continue to go up? Should I buy now, or keep renting and build up my savings? What can I even afford to buy right now?
Clients are looking to their agents for more than scheduling showings and coordinating closings - in turbulent times, clients are looking for advice.
This requires putting in the effort, but it also can reap considerable rewards - becoming a trusted advisor makes an agent indispensable to the client, proves value far and above the online listing portals, and can turn a valued client into a loyal lifetime referral source. Prioritizing the right advice for the client will help an agent differentiate themselves and build a long-term relationship, even (or especially) if it comes at the expense of a near-term commission check.
Become the expert on the matters that are most important to your clients. Hone in on a market segment - first time buyers, trade-up buyers, retirees looking to downsize, and seasoned investors will all have different questions, concerns, and priorities. Put yourself in their shoes and start asking questions to learn enough to be dangerous (and have an arsenal of lawyers, mortgage bankers, contractors, interior designers, tax advisors, financial advisors, and more for what you can’t answer).
If your clients kicked off their search several months ago, it may be time to get a revised quote from a mortgage lender and check current rates against the original budget. It may also be time for your client to purchase a rate lock to hedge against further increases.
In a new environment, your buyer may be forced to work within a lower budget than they originally anticipated, and that means making compromises on location, size, and/or amenities. Have that conversation early, and make sure to do your research on alternate, more cost-effective neighborhoods.
Ana Herrera Hernandez, President of AREAA Greater Miami and Executive Director of International Sales at ONE Sotheby's International Realty, advises her clients by encouraging home-buying to create wealth:
A potential trade-up buyer may be reluctant to leave their locked-in low interest rate mortgage, and may look to renovate or remodel instead. They probably won’t buy / sell with you in the next few months, but if you provide good advice and support, they will be more likely to come to you when they are ready.
An investor may have deeper pockets and better be able to weather inflation and higher interest rates (and pass through costs via rent) - catch up with any in your network and get a sense for what types of properties they may be looking to buy. Be ready with long-term and short-term rental stats to advise the investor, and if a buyer backs out of a transaction, keep them in mind as a potential back-up buyer.
A first-time buyer may be feeling skittish in today’s market - we asked Joe Biscaha with Greater Insights Group at Compass how he's advising his clients:
First-time buyers may also want to understand the rental dynamics. Should they buy now (even in an uncertain market) or continue to rent? Miami is actually one of the few markets around the country where rents for single family homes have risen even higher than sale prices over the last two years, potentially making continuing to rent very costly.
For those motivated buyers who are willing to weather the storm, now might be a great time to buy - dampened demand has led to fewer bidding wars, longer listing processes, and perhaps even some room for negotiation.
With sellers who have seen their neighbors cash out in yesterday’s market craze, make sure to level-set expectations and get a strong sense of what they are most concerned about. Is it getting a certain price no matter what? Is it closing quickly so they can free up liquidity to buy the next place? Is it figuring out where they should even go next? Be ready to provide advice if they’re actually looking to move to a lower cost of living area, whether that’s as their buyer’s agent, or as a referring agent.
Go the extra mile for your clients to get the deal done. A market slowdown is the best time to invest in yourself, your knowledge base, and your network.
What does this actually mean, and how do you do it? Stay tuned for our next article, and join the conversation by signing up at Courted.io!