A Shift in the Market: What you should know and do now

Many economists are forecasting a real estate market that’s cooling off. Some indicators, when taken together, might point to the validity of the prediction. Knowing what may happen can help you better prepare yourself and your clients.

The Facts

1. Existing and pending home sales have dropped - NAR
2. Monthly mortgage payments have risen by 28% from a year ago - Home Buying Institute
3. 73% of respondents said now is not a good time to buy - Fannie Mae
4. Affordability is the lowest in 15 years - Black Knight
5. Interest rates are expected to rise again in 2022 - Reuters
6. 73% think the economy is going in the wrong direction - Fannie Mae

Yes, inventory is still at record lows, keeping those with enough money purchasing. Many would-be home buyers won’t be in such a situation. And the “lock-in” effect will hit existing homeowners who have a greater disincentive to move and replace their current mortgage that likely has a lower fixed rate.

Quotable Quotes

"There will be an inevitable slowdown in home sales. Keep an eye on DOM and a decrease in multiple offers. Home sellers should not expect big easy profit gains."
Lawrence Yun, Chief Economist with the National Association of REALTORS

“If consumer pessimism toward homebuying conditions continues and the recent mortgage rate increases are sustained, then we expect to see an even greater cooling of the housing market than previously forecast.”
Mark Palim, Deputy Chief Economist, Fannie Mae

Big Takeaway

Get potential sellers to get off the fence now before rates go higher and equity starts to erode.

Present the signs and let them know what it means to their specific situation. In most cases, homeowners have an ample equitable position in their homes which could overcome any stress caused by interest rates hikes with another purchase. In some cases, sellers may want to move out of the city into the cheaper suburbs, or out of the suburbs to the exurbs to help lower their housing costs.

Marketing Ideas

Email/Letter Template

I'd like to share with you market information that might help you evaluate if it’s time for you to sell your home. Leading indicators point to a shift in the real estate market. Here are some of them and how they would have an impact on you getting the maximum equity on your home.

• Interest rates are expected to continue rising in 2022 - Rates have gone from 3.3% this time last year to 5.25% (as of this writing). Four hikes have been taken in 2022 so far, and more are expected. Both sellers and buyers are impacted by rising rates. Affordability erodes as rates and mortgage payments rise. 
• Inventory is low, yet buyers seem to be fatigued - In a survey by Fannie Mae, 73% of buyers do not think it’s a great time to buy. Part of that is because the inventory is so low. Sellers who put their home on the market get it sold quickly. For now, anyway.
• Negative economic conditions exacerbate the situation - Housing costs have surpassed wage growth and inflation by more than double over the past decade. Today's high inflation rate only furthers the problem. Residential real estate is a hedge against inflation as long as affordability doesn’t deteriorate further.

We’re in a unique situation right now where home prices have grown in double digits the past two years, so most people have sufficient equity. Inventory of homes for sale is at very low levels, so homes for sale are in high demand. It’s still a “perfect storm” for home sellers. How long will it stay that way? Probably not much longer. If you’re even thinking about moving and cashing out your equity, all signs point to now.

Voicemail Script

Hi [name], It’s Jessica Cellars, with Cellars Realty, and I wanted to share some market information that might help you from losing the equity in your home. As you probably know, home values are at all-time highs, but it may not last. Give me a call at 555.555.5555 and I’ll share my thoughts on the foreseeable slowing of the real estate market. I look forward to speaking with you!

Hot Market Postcards

Using our Hot Market series postcards with a Home Estimate QR code is an instant way to see if potential home sellers are curious about their home’s value. When they scan the code, you get notified and have a valid reason to follow up, whether it’s with an acknowledgment note card or a lightweight CMA dropped on their doorstep.

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