Real Estate Market Begins to Drop: How to Deal with the Potential Nose-Dive

It’s beginning now. I’ve been watching as the real estate market begins to dance on the edge of a sheer cliff and I hold my breath expecting a shaky, but undeniable plummet. I don’t think it’s merely a “natural” readjustment resulting from an overly inflated market (although I do think the market is terribly inflated). I think that a combination of economic factors, including a higher cost of basic goods (especially gas) have created a climate for a major housing market readjustment.

But I believe that there are other, more significant causes…
Let me be openly opinionated for a moment…

Freaky Financing
I think it’s criminal that so many people, during this housing boom, were encouraged to accept … *ahem*… “creative” financing options including interest-only loans, reverse mortgages, delayed balloon payments, etc, etc… I think these “special offers” only served to make people feel that they were getting more house than they could normally afford because they ARE getting more house than they can afford. And, as the real payments are finally coming due, these people who have become accustomed to living at a higher standard than they can afford, are in trouble. Why? Because they can’t AFFORD their homes. They never really could, but that was not immediately evident.

Even if they could scrape, watch every penny and manage to make the payments, delaying the actual principal payments only permits a person to become accustomed to living beyond their means… often accruing more debt in the form of revolving credit accounts and additional credit cards and lines of credit…. all because their house payment isn’t a “real” house payment at first.

By the time the actual payment is due, they can no longer afford it… and the houses from these scenarios are now going into foreclosure. It’s just beginning, but I expect it will get much worse over the fourth quarter of this year and especially during the first quarter of next year. Much worse.

Where’s It Headed Now?
When you add the higher cost of transportation in this very mobile (but less-than-frugal) society to the substantial percentage of the overburdened family budget that must be allocated for a too-large, too expensive house with an exorbitant mortgage payment… it can only be bad news.

And, with the normal slow down heading into the fall and winter season, the additional expenses of heating bills (as energy costs continue to shoot up), the impact will probably be even more pronounced throughout the housing industry and the US economy overall.

Where’s the Impact?
I’m talking with my own clients around the US… in New York, Atlanta, LA, and in the “outlying” areas like Indiana and Oklahoma and Oregon, etc… and the same thing is beginning to show up in all markets. It’s coming slower to some markets than to others, but it’s coming to all markets. And, as I’ve told my clients for the last three months, it’s going to get pretty sticky.

Need Some Good News?
The good news? It’s going to become a buyer’s market again… and the sellers will finally take a back seat. What does this mean for you and your clients? It means that you will have to work harder to sell the houses in the expanding inventory. Sellers won’t want to lose money and they won’t easily accept that the housing market “cash cow” is headed for slaughter.

The “readjustment” will startle sellers and leave buyers believing that they have more power during negotiations than the sellers are willing to allow them — at least for the time being.

What do you need to do as a real estate agent? Realize that the market glut of agents will soon be thinning out. Those not in the industry as a career will have a much harder time of “hanging tough” through the difficult periods. Those without the experience will have trouble soothing and calming the fretful sellers and encouraging the ambitious buyers to be reasonable and make valid bids. Those agents with a weak stomach will bail.

This means that you, as a career agent, have the opportunity to gain market share. It also means you will have to work harder for it. It means that marketing and touching your clients and your farm will become even more important than usual. It means while other agents, and even the “big” brokerages are cutting back on their advertising budget and curtailing their aggressive marketing, you will have a more open playing field.

Promotion During a Tough Stretch
Think about it… while other advertisers are cutting back, you can step forward. For the same money, you will get a larger impact. And, if the marketing venues in your area are suffering for business, you will be more likely to be able to get a discount that’s larger than normal by agreeing to advertise on a regular schedule… or maybe just by asking for the discount on a single run — gauge your market.

Now is NOT the time to panic. Now is the time to plan, to set your goals and to take steps every day to reach those goals. When the market gets tough, the tough and the prepared, the creative and the determined, are the ones that come out on top.

Select Your Market and OWN It
Just think of this as a prime opportunity to make your name, to establish your turf and to own your specialized segment of the market. Even once the the market readjusts, it will be your performance, your service, your willingness to go “above and beyond” now that will create the professional reputation that will follow you into the next phase of the market’s pendulum swing.

So plan, perform and… hang on! It’s going to be one heck of a ride.