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How did we get here? How to talk about the economy with clients

Keeping Current Matters' George Ratiu and David Childers on how to talk to real estate clients about economic uncertainty in today's market.

Chaos creates opportunity. With all the uncertainty in the market today, many agents are struggling to explain the factors affecting the market and how to advise their clients.

Over the past few weeks, the Federal Reserve raised the federal funds rate another quarter point, bank failures occurred, and home sale prices posted an annual drop for the first time in a decade. How did we get here, and what should we be focusing on as agents?

These are the questions posed to George Ratiu, chief economist, and David Childers, President at Keeping Current Matters. In this article, they share the information needed for agents to provide the highest level of service possible to their clients in the current market environment.

Where are we economically, and what should we know?

To begin, Ratiu gives us an overview of the current economy and what agents need to know:

“In March of 2022, the Federal Reserve acknowledged that inflation was going to be a big deal after spending most of 2021 stating it was transitory and not going to be a big deal. They kicked off their acknowledgment that inflation was a problem with the first rate hike to the fed funds rate in March of 2022. At their most recent meeting, they announced their 9th rate increase since they began the monetary tightening in March of last year.
“These hikes impacted rates across all financial markets, particularly bond markets where a lot of banks keep their assets. This led to the failure of Silicon Valley Bank and a few other banks, bringing uncertainty into the banking system. This uncertainty led the government to step in via bank regulators, the FDIC, and the Treasury Department to shore up the banking system as a whole.”

These actions provide me with a couple of key takeaways:

  • The government and the Fed together are committed to the stability of banks.

  • The Fed’s decision on Wednesday, March 22, 2023, to raise the Fed funds rate an additional 25 basis points highlights the fact that the Fed is committed to taming inflation despite the recent bank failures.

What should agents understand and do?

Based on the previous response from Ratiu, Childers explains what agents should take away from this information:

“There is an enormous amount of uncertainty in the economy and certainly with agents. This provides a great opportunity for professional agents to provide an educated, expert opinion on the direction of the market. The main thing agents should be able to communicate is that mortgage rates will follow inflation.
“As George said, the Fed is working hard to decrease inflation. They said in their latest statement that this rate hike might be it. If we begin to see inflation coming down, we should expect long-term interest rates to come down as well.
“For those of us in real estate, inflation, and in turn long-term interest rates, coming down is a good thing. Homes become more affordable via the mortgage payment is lower due to a lower rate. More people can qualify to purchase a home or a higher-priced home. That’s the optimistic view agents can have looking forward.”

Is now a good time to buy, or should people wait?

Home purchases are driven by life events, Ratiu said. Every potential buyer should ask themselves these two questions:

  1. Am I in a stable financial position, including having a down payment available along with sufficient savings should an unforeseen personal finance disruption occur?

  2. Do I plan to be in this neighborhood or area for a minimum of the next 3-5 years?

When posed with the question, based on the current economic environment, should people buy now or wait, Ratiu responds:

“If you are answering yes to both of these two questions, then buying now makes sense. If the answer to either of these two questions is no, then you should consider waiting until the answer to both is yes.
“The time to purchase is when your life events merit purchasing. Home prices may fluctuate up or down in a one- to two-year period, but when you have a minimum of at least three to five years that you plan to be in the home, there are clear benefits to owning a home.”

Childers adds, “To the long-term homeowner, this is an opportunistic market. Many times, we get caught trying to time the market when it is time in the market which is more important than timing the market. Over time, homeownership always wins over renting. Over the last 30 years, the average increase in home values was 298 percent as exhibited in the chart below.”

“Over the past few years, a lot of people have found it nearly impossible to buy a home. Multiple offers, rapidly increasing prices, and limited homes for sale. With increasing inventory and prices stabilizing, many people that were unable to buy a home over the past few years are finding the market much more accommodating now,” he said.

What is your outlook for the rest of this year and going out into the future?

In regards to the future, Ratiu answers with the following:

“My overview of the market is shaped by the fundamentals. We started this year with a shortage of not just existing, but specifically new home inventory. This has been the case for several years. We were even in an undersupplied inventory position pre-pandemic. The pandemic didn’t do us any favors about the shortage.
“Many people are trying to compare the current market environment with 2008, but there are major differences in this market. We are not in the same boat as we were then. There is an enormous amount of equity in homes today compared to 2008. Also, the undersupply of inventory continues to create an environment where the number of buyers desiring to purchase a home cannot be satisfied by the current inventory.
“Although the inventory across the country is improving, a lot of that is coming from homes lingering on the market longer than they had been over the past few years. We saw a decline in the number of new homes coming on the market in the winter which may have been normal seasonal fluctuations, but some of the declines we saw may have been due to sellers feeling they may have missed the peak market or having an unwillingness to sell at a price lower than their neighbors sold for.
“This leads to the opinion that buyers will continue to be interested in purchasing this spring and into the summer season. The uncertainty comes from how sellers will respond. Will they be willing to adjust their pricing and expectations to a place where buyers see value and transactions can occur?”

How do agents thrive in this environment?

To conclude, Childers speaks to how agents can thrive in the current market environment:

“Have you ever been to an event that includes a drawing for a prize? They always say, ‘You must be present to win.’ In this market, the agent that is present is going to win.
“There are a lot of agents that are unsure about the current market and they’re unsure about how to give good advice to their clients. The agents that are educated and able to answer the common questions buyers and sellers have will separate themselves from their competition this spring and summer season. Top agents realize their job is to provide their clients with the best information possible, so they can make the best decisions for themselves and their families.
“The agent that is present, while others retreat will gain market share while others struggle.”

The challenges in the market today are creating opportunities for professional, educated, and present agents to position themselves as the recognized authority in their market. This is the market for you to build the business of your dreams. Own it, and the best of your business is yet to come.

By Jimmy Burgess

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