Let’s simplify this – the market is falling because of fears of a recession. The red flag that has popped up over the last few weeks has been what we call an “Inverted Yield Curve” in the bond market. What does that mean? If you buy bonds that pay in 2 years vs 10 years the amount being paid is the same. What has happened every single time we see this? A recession. That’s right, I said every single time. We shouldn’t be shocked by this. Remember we’ve had 8 years of expansion. We have to have some sort of economic slow down at some point.
What will happen to the economy?
To put it simply, it will slow down. This is normal and healthy. Remember, 2008 was a once in a lifetime economic event. Do NOT expect that. But unemployment at 4.5%, believe it or not, is not healthy long term. It leads to inflation which is a whole other issue. But this means some companies will stop growing, leading to both people and businesses to stop adding debt or investing in riskier projects. Which means people will stay in their current homes, and less people will invest and buy new homes.
Is this like 2008?
NO NOT AT ALL. This is a healthy normal pullback like 2001. The problem is not a lot of people were in Real Estate then to know what to expect. 2008 was caused by irrational loans given to consumers that could not afford their homes at very low temporary interest rates. Once those interest rates reset people couldn’t afford the mortgage and they foreclosed. That was the first time in our history that had occurred. Today homes have been in a steady upward cycle since 2011 and now it’s just time to pause. Like I said it’s healthy. Anyone buying a home should take solace in knowing they are fine. The only people that need to be prepared are people that work in the Real Estate sector because business will slow down and they need to prepare.
When will we see the effects of an Economic Slow down?
Based on the stock market moves, you can anticipate this happening in the next 6 to 8 months. That’s how long it takes for things to trickle down.
How does this affect Florida Real estate?
First things first; things are going to slow down. Don’t kid yourself into thinking otherwise. WE WILL SELL LESS HOMES IN 2019 AND THE EARLY PART OF 2020. We are only 10 years removed from a once in a lifetime economic crisis, so consumers will think that’s what going to happen again. Less sales will occur, Days on Market will increase and overall you will see prices go down. And to be clear I don’t believe we will ever see what happened in 2008 happen again in our lifetimes. What you are going to get now is a normal economic slow down.
Orlando Real Estate Market:
Homes priced below $300k are going to be less affected. This is because I wholeheartedly believe there are not many places in the country you can go to and find:
No State income Tax
A+ rated schools
One hour to the beach
And finally homes below $300k
With that being said, remember consumers still move, still have babies and $300k is still an affordable price point in our market. So a 3 to 5 % correction in this market is what I would expect. For homes priced above $300k, I would expect a larger pullback as they have been in a buyers market for over a year now.
The Rest of The Florida Market:
Expect a larger correction. The truth be told most of Florida has already been in a correction. I would look for it to deepen. Days on Market will expand, and price points will go lower. It will become a deeper Buyer’s market.
What will happen to realtors in this correction?
The NAR estimates 93% OF REALTORS are out of the business in 18 months anyway. But they usually get replaced by a new crop. I would envision that a year from now, most MLS boards will have close 10 to 15 percent less realtors. This is simply because the market will sell less homes, which will push more people out.
How can a Realtor Make this environment work for them?
First of all death, divorce and growth of family always occur, even in a down market. That means you need to market to Probate Attorneys, Divorce attorneys and OBGYN’s. Find a way to meet them, you will be shocked how happy attorneys are happy to hear someone wants to solve their problem with a home they have to sell. Be their solution.
Second, investors will step in at some point. The problem is everyone and their mom is flipping a home or has become a wholesaler. This group will be the first group to get wiped out. They will get stuck with homes they can’t carry or simply can’t find someone to flip their contract too. At some point hedge funds, like the one I ran, will step in and buy homes as they reach over-corrected levels and feel they can make money flipping them or renting them. The key for us is the timing of this.
As a realtor you should be marketing to these funds and letting them know you want to help them make money. Or put money together and start your own fund.
Thirdly do not commit yourself to anything that you cannot get out of in more than 90 days. Meaning contracts and agreements This is the time to run lean and stick to tried and true ways of marketing that has worked for you Make sure you try stick to the 8 percent cost of marketing rule. For every dollar you spend you better make $8 for it to work long term.
Should you get another Source of income?
In 2009 most of my friends in real estate, and I mean the top 4%, struggled. They couldn’t in good conscious sell a home to someone knowing it was going lower. The REO and Short Sale Agent’s did decent, but that made up a small group. And btw REO’s will not surface for 18 months. Remember people have to lose their jobs first, then stop making payments for months on end and then comes the foreclosure.
My point is start looking for a secure source of income outside of Real Estate if you can. Because when it slows down and no one wants to buy, NO ONE WANTS to buy. And you need to be ready for how to deal with that.