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As we move deeper into a new real estate market reality, many are looking for answers and direction. Most look to national news sources for information which, unfortunately, are typically sensationalist and non-local.
Those real estate agents who can provide accurate, up-to-date and meaningful market data — those who take the time and effort to become true local market experts — can become the “economist of choice” in their region and as a result, become the agent of choice when buyers or sellers decide to make a move.
It can be a daunting task. The real estate market is influenced by a broad spectrum of factors on both a local and national scale including economics, environment, politics and societal trends. Although local knowledge of these four is critical, a larger perspective is also required since local markets operate within the grander picture of cities, counties, states and the entire country.
Here are my top 6 ways to become the local economist of choice
1. Know your local market data
This is going to vary based on your audience. It could be as local as a specific neighborhood, city or county, but could also extend to the entire region, state or the entire country. At its most fundamental, this includes:
- Current number of active listings: How many homes are currently on the market by category? This can be sliced a number of ways, including entry-level homes versus luxury, single-family homes, townhomes, condos and so on.
- Current number of pendings: How many homes are actually under contract in your category?
- Number of sold properties in the last _________ months: We typically show data from the past 18 months; many choose to use the past 12 months.
- Average current days on the market (DOM) in the past _________ months: This one number helps reveal whether the market is speeding up or slowing down.
- Current average list price versus sold price: What is the current average list price versus the current average sold price in your category? You should also include the average percentage over or under — as an example if the average list price for single-family homes is $335,000, but the average sales price is $326,500, that means homes are selling at an average of 93 percent of the list price.
- Current average sales price per square foot: What is the current average sold per square foot in your category?
- Current absorption rate or months of inventory: The absorption rate measures supply and demand. Take the number of homes sold in a month and divide it by the current number of active listings (on your phone calculator, enter #solds ÷ #actives = %). This will produce a percentage rate — more than 20 percent indicates an active or seller’s market while less than 20 percent suggests a declining market slanted toward buyers.
Although some regions use absorption rates, others prefer to use months of inventory. To calculate this, take the number of homes sold in a month, and divide by the number of active listings in the same period (on your phone calculator enter #active ÷ #solds = months of inventory). Normally, a seller’s market is anything under six months of inventory. Under the current market conditions, it might actually be closer to four months of inventory.
Keep in mind that the data you are using will typically be at least 30 days old unless you go in and manually pull the numbers from the MLS. We rely on companies such as TrendGraphix.com to provide the data for us. Some MLSs, associations or brokerages will provide access to this type of data for free; in other cases, you will need to pay for a subscription.
2. Know the national numbers
The National Association of Realtors (NAR) is a great resource for national data. You can follow NAR on the Economist’s Outlook Blog, Facebook, Twitter, Instagram, Pinterest and YouTube. Statewide information can be obtained from state associations. Because both NAR and state associations all have their own in-house economists, I recommend you sign up with both to make sure you get the data as it is provided.
Realtor.com releases a monthly report that can be used to help your clients understand current market trends. For example, specific data, when used correctly by Realtors, can help buyers understand that now is actually a very good time to purchase of home due to the current lull in activity.
3. Understand your local economy
It goes without saying that the economy in Northern California’s Silicon Valley is different than Detroit, Austin, Tallahassee or Fairbanks. Agents need to be students of their own local economies to provide meaningful data to their clients. As an example, prices in Austin, TX have risen dramatically due to the number of tech employees relocating there from California.
As businesses come and go, they have an economic impact on both the region they are leaving and the one to which they are relocating. New York made it known that they were not excited to have Amazon set up its second headquarters in Long Island City, Queens. As a result, Virginia scored a home run for the local labor force, and the resultant hiring of 25,000 employees will have a definite effect on the local real estate market.
COVID-19 also had an impact on local economies as some saw the pandemic and the ability to work remotely as an excuse to relocate out of major urban areas. NAR can again help through publications like its Migration Trends Report, which details the flow of people across the United States, which areas and cities benefitted the most and which destinations were preferable to businesses.
Bottom line: Take the time to understand the economics of the region you serve. Know who the major corporate players are and stay in touch with their plans and strategies. This will give you a leg up when discussing trends with clients.
4. Understand the national economy
These are epic times, and we have been through a few troublesome years for our country as a whole. Issues that are viewed on the national stage deeply affect local economies as well. Not only have we faced a pandemic, but we have also seen a growing deterioration in racial relations and a deepening divide between the haves and have-nots.
A significant percentage of homeowner wannabes have been priced out of the market as affordability has been skewered by exorbitantly high home prices. We have endured extensive supply chain issues and seen the cost of homebuilding go through the roof as both pandemic outbreaks and wildfires have pushed the price of lumber ever higher, further deepening our national housing crisis.
Making matters worse is the growing cost of homeowner’s insurance resulting from an increase in natural disasters.
Our nation is becoming ever more divided along party lines as some are making deliberate moves to live in regions of the country more aligned with their personal beliefs about religion and politics. We have also seen escalating tensions around the world.
As an example, the war in Ukraine has given us an unprecedented look at how tightly interwoven world economies have become. We have been startled to see how a war on the other side of the world has already increased difficult worldwide shortages of materials and increases in prices of commodities like oil, which in turn has hit us all in the pocketbook at the gasoline pump.
All of these issues affect our national economy, which in turn affects the local real estate market.
5. Understand the current trends
Where is the real estate market going and why? How will the housing crisis coupled with increasing interest rates resolve itself over the next six months? How will the emergence of Zoom meetings change client relationships going forward? How will Americans’ desire to free themselves from the pandemic-induced seclusion of their own homes affect the vacation rental market? How will the migration of tech workers from the west to the east affect the destination markets?
Will the commercial office space market rebound now that the pandemic is winding down and companies are asking workers to show up in person? What effect will the slumping stock market have on the abilities of first-time buyers to come up with down payments? What effect will the pandemic have had on the types of homes buyers now want? What will happen to rental rates as landlords push to increase rents to keep pace with increasing property values? How will ever-increasing efforts by municipalities to apply rent control affect long-term prospects for investors?
These are typical of the types of questions affecting local real estate markets. While the questions differ from region to region, those wanting to be the local Economist of Choice need to know the questions affecting their local markets and work to secure answers when possible. In addition to NAR, organizations such as PwC can help through publications such as their Emerging Trends in Real Estate 2022.
6. Communicate constantly
It is not enough to be extremely knowledgeable; there must be a comprehensive plan to disseminate that knowledge to your sphere, especially in times such as these when the market is shifting. Your clients are looking for answers and their behavior will change based upon the type of information they receive.
In many cases, that information will be incorrect and could limit their choices at a time when significant opportunity is emerging. People will migrate towards those whom they believe have the best answers to the tough questions and an overall knowledge of how our current situation affects them personally. Why not be that voice?
Emails, calls, text messages, letters, postcards, Zoom webinars, video — all should be part of a cohesive strategy to help those around you gain the information they need to make informed decisions. Too often real estate agents are reactive because they do not fully understand the issues at hand. Better to have studied current trends in order to help your clients develop a proactive wealth-building plan.
To become the Economist of Choice is not an easy task, which is why most Realtors will never pick up the reins. Those who do and who learn to communicate effectively will be the ones buyers and sellers migrate to when looking for knowledgeable representation.
Carl Medford is CEO of The Medford Team.