Small Signals the Market May Be Shifting

Unless you’ve been living under a rock, you’ve probably heard the noise surrounding a potential market shift. While there is a lot of talk about if a shift is starting, if it’s already here, and what kind of shift it will be, there hasn’t been a lot of talk about ways to know for sure that a shift may be occurring. How do you know if it’s just seasonal cooling vs. balancing vs. real shifting? Here are a few subtle clues to watch for and some action items to take if a shift does happen.

First of All, What Really Constitutes a Shift?

The market shifts ALL the time. Once you learn this, a shift carries less fear and you can be more prepared to handle it. A shift is not just something that takes a great market to a market that’s in the toilet where no one can make a living and the whole country is in recession and no homes are sold. So let’s all just breathe. 

We saw a shift a few years ago when the market swung up really fast and all of a sudden we couldn’t get homes to appraise. We saw a shift this year when new construction started to rebound and the market started to see more new homes popping up again. My market is seeing a dual shift because tech companies are moving in bringing new jobs and long time residents who don’t love the rapid growth are moving out. Shifts are happening all day long. Just like the wind blows in and out, so does a shift. The faster you can do away with the mindset that a shift is a horribly bad thing, the faster you’ll learn to recognize and recover from them.  

The Obvious Shift Indicator

Days on Market Increase and Prices Decrease.
This is a fairly obvious indicator that a market shift may be occurring. Days on market go up (homes take longer to sell) and prices go down. But this indicator can be tough to use to really gauge your market, as in seasonal markets (like where I am in Colorado) this happens every year. While we are feeling that it’s shifted more significantly than the past several years, it is hard to tell whether this is just seasonal cooling or whether this is actual shifting. The market in Colorado for example typically does 100% of its entire yearly appreciation between January and June (our selling season), so of course we shift, cool, and balance between June and December (our cooler season). 

Less Obvious Shift Indicators

1. More Contention Between Buyers and Sellers.
   When the power balance begins to swing from one party to another (IE from sellers to buyers) the level of contention between parties to a transaction worsens. Why? The power is shifting but the market doesn’t know it yet, and so it resists. This is happening in my market now. Sellers still believe they are in a strong seller’s market and they will sell their homes over asking with multiple offers in a matter of days. Buyers can feel the market has softened a bit and are taking advantage by pushing back on overinflated prices and paying top dollar for homes that are not in top dollar condition. Do you feel your buyers asking for more inspection items? Do you feel your sellers getting offended by low offers or long inspection objections? Do you feel like you’re fighting the agent on the other side of the deal all day long? That icky feeling is the power balance shifting. Hang on to your hats, that part of the shift physically hurts and is really hard to deal with as an agent as tensions and emotions run very high.*ACTION ITEM: Get your mind right now. Learn to remove your emotions from your deals completely. Nothing feeds your client’s fire like you having your own emotions on top of theirs that are already running high. Your client’s emotions are valid and real but you need to learn how to listen to them and how to “eat” the yelling and crying without making it worse. The best agents are a sponge absorbing as much of the tension in a deal before it even hits their clients. Do you feel emotionally exhausted at the end of the day? Good news, you’re probably being a good sponge. Do not minimize your client’s feelings, but do not feed in to them either. Bring them back to reality and what’s really important.
2. The Termination Rate Goes Up.
   Deals are harder to put together and even harder to keep together and get to closing. You’ll see more properties popping off and then back on the market again. This has to do with the swing of power I mentioned above, but also as buyers are getting more and more stretched financially by rising prices and interest rates, lenders are having a tougher and tougher time getting deals to closing. Buyer’s debt to income ratios go up with prices and rates, and buyers become less qualified.*ACTION ITEM: Make sure you have a rock solid lender (or three) on your team. Someone you trust to tell you the truth up front, get your deals done, and someone who will work to get your clients to closing. In a shift the easy days end fast, and if your lender will throw in the towel at the first sign of trouble, you’re going to have a very tough time closing deals. Align yourself with a lender who has a lot of different types of loan programs and flexibility and who is a direct lender if possible (less overlays of approvals.) You want “The Fireman” in a shift, the guy who will put out the fires and close the deals no one else can.

   *ACTION ITEM: Learn the difference between what is a major inspection issue in your market (health and safety items, the things most buyers will request, the highest dollar items…) and what isn’t. Review your last several inspection objections (or get with an agent who has more under his/her belt if necessary) and learn about what those items typically cost. That way you can be more prepared for what may come up during an inspection and how to handle it when it does. I know that my average to resolve an inspection for my sellers in the last 12 months is $1,500 – $1,700. I know the top 10 things buyers will ask for in my market and what they cost to fix. That gives me a real baseline for whether or not a buyer is asking for something important, pretty typical, or something out of left field that a seller really shouldn’t probably address. Sellers need facts to make informed decisions, so being able to tell them if a buyer is or isn’t being unreasonable is very helpful when dealing with an unreasonable or emotional seller.

3. Open Houses Everywhere. 
   I’ve asked for coverage on dozens of open houses in the last few weeks. My posts looking for open houses are drowning in the pool of other agents asking for open house coverage too. When a home doesn’t sell, we all go back to the basics on how to get more buyers to visit the listing. The first way to do that is to hold an open house. If you’re seeing open houses everywhere, this is a strong indicator that days on market are going up and the market is shifting.*ACTION ITEM: Learn how to make your open houses stand out amongst the rest. Chris Suarez teaches an amazing class on holding Mega Open Houses. Also consider doing multi-opens to draw more traffic. Go to the agents with competing listings (yes, not joking) near yours and work together to create a multi-open house. Like a mini parade of homes. More houses open draws more traffic through each listing. Help each other
4. Agent Musical Chairs. 
   You’re scrolling through the MLS and notice a great new house pop up on the market. But wait, that’s actually not a new listing… That’s the listing you saw two months ago listed with a new agent. And that’s the third time you’ve seen that this week. Why does this happen? When the general public hasn’t caught up with the fact that the market is shifting, the first natural instinct is to blame their agent. Not enough showings? No offers? If you haven’t been told that’s happening because of a market shift (or if you don’t believe it) you can’t be blamed for considering that it’s your agent’s fault. So, you fire your agent and hope the next will do a better job marketing your home. It’s natural instinct, you’d do it too, I promise.*ACTION ITEM: Operation Defcon. On my team, when a listing isn’t selling, I have a set (in advance, don’t wing it) list of what we will do day by day, week by week to reengage potential buyers until it sells. Don’t get caught with your pants down doing nothing but praying your listing will sell. The longer it sits, the more your sellers will panic. Panicking sellers are not good for a real estate agent’s long–term career. Action calms panic. Show your seller you have a plan that you will execute if their listing is not selling.
5. Making Listings Rain.
   Those of us that are high volume listing agents have noticed that we are starting to go on more listing presentations week over week. For a minute that makes us feel like lean, mean, listing machines, but then we realize… Wait a minute. This is the inventory level rebounding. People are starting to sell. More listings are coming on the market. If this continues, things will balance as the supply goes up making demand go down. Yes, it’s fun taking double the number of listings you typically do in a month, until you realize all those listings are going to be really hard to sell right now.*ACTION ITEM: Price it right. I’m talking to myself here too… A shifting market is the WORST time to price a home too high. In a bad/down market, sellers already understand selling is going to be tough and they’re prepared for what that means. In the beginning stages of a shift, they don’t even know or realize a shift is happening, so they just think you’re a horrible agent when the home doesn’t sell right away. This is a really hard thing to deal with because many agents don’t even know the market is shifting. That means that you have to be the bad guy in a listing presentation telling them to price lower and hold on tight while your competition is telling them to price high and wait for multiple offers. Be the guy that prices it right so you don’t have to be the guy that gets his listing taken away during Agent Musical Chairs. Price it right. Price it right. Price it right.

So, do I think the market is shifting?

Yes. But do I think it’s a catastrophic shift? No. I think it’s a much-needed balancing. If we don’t balance, I believe we will inadvertently cause a catastrophic shift. We need a balancing. Do I think we will all survive? Yes, absolutely. I’ve been through several catastrophic shifts, and I have to say this part (the icky, start of a small shift) is worse than a market crash. Your clients need you now more than ever to hold their hand, validate their fears, tell them it will all be ok, and do more than you’ve ever done to proactively sell their homes. SHIFT HAPPENS. You’ll get through it because you are a professional, and that’s what professionals do.

If you really want to learn about how to shift proof your business, grab a copy of SHIFT by Gary Keller. Studying this in advance will make the difference in whether or not you are prepared to handle any kind of shift whether big or small, of if you’ll just be one of those people that let shift happen to you. Don’t take no shift friends, get ready and be prepared!!!