Source: firsttuesday Journal —
Working in a buyer’s market
The past decade of real estate sales has given preferential treatment to the seller.
During this time, sellers — and real estate agents — have gotten used to experiencing housing as a get-rich-quick scheme. This was especially true during 2020-2021, when receiving 20 or more offers on a home was commonplace. Home prices skyrocketed, fueled by basement-level mortgage interest rates and buyer fear of missing out (FOMO).
This all ended spectacularly, following California’s peak in home prices in May 2022. Just five months later and home prices have plummeted 7% in the low tier and 10% in the mid- and high tiers, as of October 2022.
Faced with falling home prices and rising mortgage interest rates, most buyers are taking a back seat to today’s housing market, choosing to wait it out rather than rush into a purchase they will quickly regret. Sellers are becoming increasingly desperate, cutting prices and offering concessions.
With a dearth of homebuyers and rising multiple listing service (MLS) inventory, the few homebuyers still active in 2023 are finding the driver’s seat empty; the engine raring to go.
In other words, the seller’s market of yesterday is gone. In its place — a buyer’s market.
Any real estate agent who began practicing within the past decade is unfamiliar with this type of environment. Even if you were practicing during the last buyer’s market — through the aftermath of the Millennium Boom and Great Recession — these time-tested strategies can fortify your income as the housing market reaches an inflection point in 2023.
Recessionary buyers think outside the box
Agents need to pivot from focusing on providing seller services to finding and working with buyer clients. This means refocusing expertise on the needs of both traditional buyer-occupants and investors purchasing at the bottom of the market.
Become an expert in assisting clients with the types of sales common during a recession, including purchasing:
- homes at trustee’s sale — foreclosures;
- short sales; and
- real estate owned (REO) properties.
As prices continue to dive in 2023, plunging recent mortgaged homebuyers underwater, these types of transactions will become more common. Seasoned agents will recall REO sales made up a whopping half of all home sales in 2009.
REOs become a large presence in the market when home prices broadly decline. Then, recent homebuyers quickly find themselves underwater, weighed down by a mortgage balance larger than their home’s fair market value (FMV) — a detrimental condition known as negative equity.
When the inability to make mortgage payments or the need to relocate strikes, some of these homeowners will seek out mortgage modifications or short sales.
Others will simply head toward foreclosure, waiting for the trustee’s sale to compel them to vacate. These homes will become REO properties in the portfolios of mortgage lenders.
Brokers in search of the best deals for their clients will form relationships with lenders and servicers. With this insider status, they will learn about REOs with the best investment potential before they hit the MLS and build a reputation as a dedicated agent an advocate for homebuyers seeking discounted REOs.
Watchful brokerage offices, typically the small ones, will set up REO departments to capture this unconventional sales market typically dominated by lenders.
Buyer financing deals found during a recession
Mortgage interest rates soared over the course of 2022, dropping buyer purchasing power 31% below a year earlier as of December 2022. In other words, a homebuyer with the same income is able to borrow 31% less purchase-assist mortgage money than a year ago when mortgage interest rates were still near historic lows.
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