Gary keller: the current real estate market is “the most confusing i’ve ever seen”

Gary Keller: The current real estate market is "the most confusing I've ever seen"

There's a lot to worry about in today's market: Coronavirus infections are near their 2021 peak, health officials are sounding the alarm about monkeypox and polio, inflation and mortgage rates are steadily rising, home sales have slowed and the industry's largest real estate companies are it preparing for a possible recession.

Even as strong headwinds push agents and consumers to the brink, Gary Keller, founder of Keller Williams, encouraged agents at the broker's annual Mega Camp conference Tuesday to take a more measured approach when analyzing the current marketplace.

"When times are good, you understand they're going to get tougher at some point," he said matter-of-factly, while wearing a black T-shirt with lettering that read "Charge the Storm". "And when times are harder, they eventually get better. This is how the world works."

Keller, however, couldn't help but acknowledge that today's market turnaround is very different from previous cycles, when it was easier to read the tea leaves and understand exactly what to do to survive. However, he said the current market is full of "mixed signals" that could make it difficult to develop strategies.

"I would say this is the most confusing market I've seen in my 40-plus years in our industry. It's confusing, and it's only confusing because you have mixed signals," he said. "Normally, I would expect all signs to point in one direction. And that's not what's happening."

Keller noted that despite rising home prices, average days on market are still at an all-time low, although they are longer than the two or three days agents were used to at the height of the pandemic. He also highlighted the false alarm about rising mortgage rates, which, while hovering around six percent, are also near record lows.

"If you talk to people who don't understand mortgage rates, they don't realize that 2.9 percent was a gift from the gods that you may never see again in your life," he said of recent trends in two years. "But again, a lot of people remember when I got into real estate, interest rates were below 10 percent. That was considered amazing."

"Then they went up to almost 18 percent, and I remember all these experienced brokers in the office where I worked all saying, 'Nobody's going to buy real estate at these prices, we're just going to sit back and wait it out. back," he added. "I don't think they will last in the industry. Right?"

Keller told brokers to feel in tune with the market, but not to fall into the belief that their businesses can't continue to thrive even in such turbulent times.

"I ignored the market and continued my activities," he said, recalling his early years in the business. "I just kept going and there were four or five months where I didn't really have a closing … And at the end of the year, I met all the financial goals I had set for myself and even took December off. ."

"The trick was to ignore the market and continue the activity," he added. "This is where you have to be very careful, because some of you are going to look at this data and say, 'Oh shit, these things really suck. The sky is falling and I can not do better. Do not fall into this trap."

Home sales are slowing, but don't panic

In 2020 and 2021, brokers easily broke their previous sales records as rock-bottom mortgage rates, remote work, a pause in student loan payments and multiple stimulus checks caused buyers to scramble for scarce listings. 2022 ushered in a slower pace, however, as inflation, rising mortgage rates and other socioeconomic factors dampened buyers' insatiable appetite for homeownership.

As a result, Keller said the industry will end the year with 5.1 million home sales, in line with other forecasts that have pegged year-end sales around the 5.7 million mark. Although 5.1 million is a far cry from the 6.1 million home sales in 2021, Keller said that's still a healthy number of transactions compared to the early 1990s, when annual home sales struggled to exceed four million.

"If you look at 5.1 look at and go back to 1995 is 5.1 [million] It looks pretty good, so perspective is really important, " he said. "A lot of real estate is bought and sold to build fantastic businesses and generate fantastic revenue from that business.

'So why does the current market seem more like a drought than a monsoon of opportunity? Jay Papasan, vice president of strategic content at Keller Williams, said it all boils down to one thing: more competition.

"The last time we were at 5 million [transactions] There were a third of the real estate agents that there are today," he said. "So there are more people chasing the same transactions."

With that in mind, Keller and Papasan said agents should focus on mastering the fundamentals of real estate and focus on getting better at navigating the tough times rather than wishing for the easier ones.

"When interest rates hit almost 18 percent and transactions really dropped dramatically, my attitude every day was that someone was going to buy or sell a home and I was going to work with them," he added. "Everyone else? Good luck."

Slowing home price growth ≠ buyer's market

Rising home prices have been the bane of homebuyers' existence for the past seven years, as homebuilders struggled to correct a growing imbalance between supply and demand.

That imbalance has worsened over the past two years as supply chain issues caused by coronavirus and rising labor and material costs held contractors back, and market headwinds prompted a record number of buyers to enter the market. As a result, home prices have continued their meteoric rise, with national home price growth expected to reach about 18 percent in 2021, which Ruben Gonzalez, senior economist at Keller Williams, said won't last long.

"To get some perspective, the last time we had a double-digit price increase, it was followed by seven years of single-digit price increases," he said. "So it's very unusual to have multiple double-digit years, and it's not something that's going to be permanent."

Before homebuyers pull out their megaphones to celebrate, Gonzalez and Keller said slowing home price growth doesn't necessarily mean homes will become more affordable.

"We don't think we're going to see negative price [appreciation]," Keller explained, noting that it will take at least four years for the market to reach the historical trend line of 4 percent home price growth. "We think we're just going to see a decline in the inflation rate [for home prices]."

Keller said homebuyers currently spend 25 percent of their income on housing costs, which is high but still lower than in previous decades when homebuyers spent up to 35 percent of their monthly income on a mortgage.

"I'm so focused on my selling days that I'm thinking, 'Yeah, what's the problem??' Keller admitted. "For 1979, which is not on this chart, I promise you that number was 32 to 35 percent in 1979, and I thought that was normal."

Keller said inventory is still at 3.3 months, indicating that sellers still have the upper hand. However, if the U.S. market follows Canada's lead, a true buyer's market could be on the way.

"The reality is that what we just put out, and I can't say enough, is unprecedented. And people will have to forget this. That was [about making hay when the sun shines," he said. "Canada is experiencing exactly what the US is experiencing."

"Sales are dropping at about the same pace, price appreciation a little less than what we're gonna experience this year, but almost right in line with that, and inventory? Same thing," he added. "They're moving into a buyers market rapidly."

Inflation is taking the gas out of people's tanks – literally and figuratively

Although the past two years have been heartbreaking, Keller said there's still been plenty of opportunities as evidenced by record-low unemployment rates, robust home sales (until now), and relatively solid personal finances among homebuyers compared to the Great Recession.

However, consumer sentiment is at a record low. Why? Inflation.

"There is more money sitting out there in bank accounts than ever before. People are unemployed at one of the lowest rates in history and son-of-a-b – they're unhappy. Desperately unhappy," he said. "It's just a little weird, right? You've got a job. You're just got a great pay raise. You're living a good life."

"I truly believe that gas is the number one determinant of how consumers feel about the economy, and the reason an extra $100 to $200 a month just on gas, is the extra money – that's new clothes for the kids to go to school. That's just that extra money for that, that three-day or four-day vacation trip," he said. "It takes some of the little fun out of it."

Keller said it's important for agents to help consumers properly process economic stressors, which will help them make better financially-sound decisions about homebuying and selling.

"It's going to take through 2023, most likely, to grind through all of this," he said. "But the last three years have misled people to believe that buying real estate was like owning an ATM. "Yeah, I can buy it and tomorrow, I'll just flip it.' This real estate game is amazing, but that was a moment in time. That's not reality."

Keller said agents must help homebuyers think about real estate in the long-term and that any purchase that's made with the intent of staying seven years or more, is a winning decision even in this market.

"If your holding horizon is anywhere from seven to 10 years, the facts show that you're good to go," he said. "Someone says, 'Oh, you know, I don't want to buy right now. I'm afraid prices go lower.Well, institutional buyers are seizing opportunities."

"I remember reading the books when it was really hot and heavy about buying versus renting, and the investment world was saying buying a home is never good," he added. "Call Blackstone and all the other institutional investors and say 'You shouldn't buy.'"

"But ultimately it's not your life, it's their life, and your goal is to give them the perspective and give them every chance to understand all the issues so they can make an informed decision."

Even through the confusion of today's market, Keller said agents can still create some of the best years of their careers if they're willing to charge into the storm instead of running from it.

"Buffaloes are an interesting animal. When a storm occurs, they're the singular animal that runs into the storm. Somehow they figured out that if you face the storm and run into it, you get through it better and faster," he said. "That's how you win."

Like this post? Please share to your friends:
Leave a Reply

;-) :| :x :twisted: :smile: :shock: :sad: :roll: :razz: :oops: :o :mrgreen: :lol: :idea: :grin: :evil: :cry: :cool: :arrow: :???: :?: :!: