I've always told my clients that if they want to know what will be happening in the real estate industry, they need to be talking to a trusted real estate professional. If they want to know what has HAPPENED in the real estate industry, they can turn on the evening news.
The truth is that real estate professionals often get indicators about what is really going on much earlier than any industry analyst can predict or report. It's the benefit of being on the scene at the moment, having boots on the ground so to speak...
When the market began to change in 2005 - 2006 in West Michigan, historical data still indicated that things were on solid footings. But many experienced agents sensed a shift.
Early Warning Indicators...
By 2008, the evidence of a major slow down was unmistakable. Some of the criteria which gave agents early warning several years earlier were:
1. Fewer showings and offers on properties
2. More difficulty in marketing properties even after price reductions
3. Increasing numbers of listings for sale
4. Declining attendance at area Open Houses
Much of the publicly available economic data at the time was not sophisticated enough to detect these subtle changes. Certainly not as leading indicators for a major downward trajectory which would plunge prices down 25%- 35% in many areas and double the listing inventory; landing the Absorption rate at over a year in 2008. (the major exception being the Case/Shiller Index)
Market Place Unreality...
Consumers were also feeling uncertain about the future. Instinctively, there was an inner shift that was not discernible in the arena of indexes and mathematical equations. That unreality was sometimes expressed in peculiar ways such as continuing to re-finance as though there was no tomorrow...even when folks KNEW they could not meet the payments if any slight deviation occurred in their lives. I remember talking to one client who remarked about 'easy money'. That conversation still stands in my mind as a marker of how unreal things had become. We both knew...there is no such thing as 'easy money.' Yet, it seemed to be offered at every turn.
Pent Up Demand...
Over the past several years, we've watched consumers tighten their belts. Boosting their saving rates and working to clean up their credit. But, there's something else happening right now which may provide a key indicator of where things are going.
It's reflected in what we witnessed this past Thanksgiving weekend. While, there are many folks like me who could not be bothered to stand in line during the early hours of the morning, many of our fellow Americans not only did so, but also spent massive amounts of money shopping.
Sales were up 16% over the same period last year; with the average shopper spending $398.62 as opposed to $365.34 last year. What's most interesting is the 44% indicate that they spent this money on themselves! That's right...me, myself and I! This was not shopping for Christmas presents. This was about satisfying the driving craving to buy something...anything. To feel good again. Consumers are indicating that they're ready to move on with their lives. They've adjusted to the 'new normal'...at least for now.
What Does Black Friday Frenzy Have to Do With Real Estate?
So, what does this have to do with real estate? Potentially a lot. I believe there is a pent up demand to enter into the housing market again. Just like retailers used deep discounts to lure shoppers into the marketplace for deals which lead to other purchases, real estate is currently deeply discounted across many parts of the country. Some heavy hit areas like Las Vegas and Florida are already seeing an upward trend in sales from investors. West Michigan inventory levels are the lowest since 2003.
Lending & Spending...
What's holding the floodgates back in real estate? The reality of tight credit. Increasingly higher lending standards and uncertainty in the marketplace continue to make it difficult for those who would like to be in the market to qualify. During the most recent NAR convention, Economist Lawrence Yun indicated that if lending standards simply went back to pre-crisis mode, there would be up to a 15% -20% increase in activity almost immediately.
At some point, this horrible economic cycle will end. Nothing lasts forever. This is a global bust. The funny thing about money is that it order to grow...it needs to be put into circulation. Money that stagnates, eventually dissipates. That's why putting money under the mattress has historically produced few millionaires. Smart money has to work. They key is creating environments which will give the certainty required to allow it to do so with adequate safeguards.
And as this happens...agents who are prepared and have the inventory and correct skill sets will be poised to take advantage of the pent-up demand. It's simply a matter of timing and preparation.
Click below to watch the full ABC Sunday News report.
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