52: Low Housing Inventory
The majority of sellers used to list a house that they’d lived in for between five and seven years, but then the housing bubble burst and the Great Recession battered the world economy in 2008.
About This Episode
People are remaining in their homes for longer than ever and new home construction still hasn’t fully recovered from The Great Recession. When your clients come to you looking for a new home, especially if they’re a first-time homebuyer, they may be experiencing a lack of available inventory.
This episode recaps the history that created today’s problem, as well as some tips for how to overcome low inventory and continue to thrive in a hot market.
Our free ebook, The Comprehensive Guide to Agent Safety, is available on our Agent Essentials Resources page here.
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JON: At the beginning of the nationwide lockdowns due to the COVID-19 pandemic, there was plenty of anxiety to go around. There still is, of course, but these days it’s of a slightly different flavor. Back then, in the early days of March, the worry was that no one would buy a house, or that they would have no interest in selling their house while a deadly virus raged through the general population.
JON: Thanks to historically low interest rates, those fears were mostly unfounded. Because everyone suddenly spent a lot more time in their house than ever before, many people grew sick of it and decided to move earlier than planned. Some people just got bored and decided that a change of scenery sounded like a good idea. Whatever the reason, a lot of people suddenly wanted to move.
JON: And so now, six month after most quarantines went into effect, America is facing a different issue, and it’s one that’s popped up throughout history for various reasons. With high demand and low inventory, where do all the homebuyers find their dream home?
JON: Hello and welcome to Shop Talk: The Real Estate Show. I’m Jon Forisha, and on this episode we discuss something that’s become extremely common in housing markets across the country: low inventory.
JON: First of all, we’d be remiss to not point out that September is REALTOR® Safety Month, the month each year that the National Association of REALTORS® shines the spotlight on how to stay safe while working in real estate. In 2017, the Bureau of Labor Statistics reported that 48 agents died on the job, and staying safe can mean a number of different things. Here to talk more about agent safety is Jeff Erbert, Regional Content and Social Media Specialist with The CE Shop.
JON: Alright, Jeff. Thanks for joining me.
JEFF: Yeah. Thanks for having me on the show, John.
JON: What are some basics of staying safe in real estate?
JEFF: Well, when, when it comes to real estate there's a few things you can do. One of those things is never give out full details about where you live, your schedule, your family, or any other information you feel might compromise your safety. Another basic thing is just to suggest meeting potential clients in public places like a coffee shop or a favorite local restaurant. And when hosting an open house, just have a friend swing by and help you do the final walkthrough before you kind of get everything closed up. Just, you know, so you have somebody there with you and last but not least it does not hurt to know some basic self-defense and that's probably useful wherever you are and whatever profession you are.
JON: Yeah, absolutely. How has working during COVID-19 changed the safety landscape?
JEFF: Yeah, so it's an interesting one, you know, like, like a lot of other industries, there's definitely no denying that COVID has changed the way real estate agents do business. So, you know, not only for yourself, but the safety of your clients, if you are going to meet somebody in person or show a property just suggest driving differently when you get there, just follow the recommended the CDC guidelines for being safe. You know, because as a real estate professional, not only do you want to keep yourself safe and your friends and your family, but you also interface with a lot of other people as well.
JON: You mentioned cars, you mentioned driving why is car safety something that agents should pay attention to?
JEFF: Yeah, definitely. So yeah, in our, in our last ebook, The Comprehensive Guide to Agent Safety, I do talk a lot about cars. But that's because if you look at every major industry group motor vehicle crashes are the first or second leading cause of death. And that's according to NIOSH and real estate agents drive a lot some drive up to 20,000 miles per year. So that's a lot of time on the road. Therefore a lot of risk. So yeah, just, just follow basic safe driving practices, like drive well, rested drive, sober, you know, avoid distracted driving at all costs. And please, please, please wear a seatbelt. You look to dive into some of the statistics on that. There are sobering to say the least according to the CDC, if you wear a seat belt, you can reduce your chance of dying in a car crash by 45% and your risk of serious injury by 50%. So quite an improvement for a very simple action.
JON: Yeah, definitely. Yeah. So many agents can run into legal problems, you know, when a client decides to Sue or if they're held liable for not disclosing something how can agents stay safe legally?
JEFF: Yeah, definitely. Well disclaimer, I am not a lawyer, so I probably shouldn't be giving legal advice, but the one thing I do know about lawyers is that they like a paper trail. So if there's something that you feel like you need to disclose to a client always make sure you deliver that in writing, you have a copy for yourself, so basic email and then follow up on that email and document that. So you can show that you communicated this information and you made a reasonable effort to make it known. And if you're ever wondering or unsure about anything, always ask an attorney.
JON: Absolutely. So much is done digitally these days. When we're talking about safety is cybersecurity and issue that people should pay attention to?
JEFF: Oh, most definitely. Yeah. I would say cybersecurity is something that everyone in every profession should take seriously. Just because you know, that that's the reality of our world right now. And I don't think technology is going away anytime soon. So for your sake and for the sake of your clients just be careful who you give your information to. If you come across a suspicious email always try your best to confirm with that person that they are in fact legitimate and there are multiple ways you can do that. And lastly always change your passwords. Every once in a while you know, as computers become more advanced, we get more processing power so do the bad guys. As far as modern security goes, I think most experts recommend having your password length, at least 10 to 12 characters, probably pretty good and use random letters symbols, et cetera. Even if you have to write it down and keep it somewhere you know, like on a piece of paper it's probably probably a good thing.
JON: Yeah. Or even better, a password manager. Yeah,
JEFF: Exactly. It can really help out.
JON: Absolutely. All right. Jeff, so any other tips that you have for how an agent can stay out of harm’s way?
JEFF: Yeah, definitely. So there's, there's actually a lot of technology out there that helps agents stay safe on the job. And that could apply for a lot of other professions as well. I know one we do like to talk a lot about is invisaWear, invisible wear jewelry, which is, I think of it as kind of like a little fashionable life alert. You one press of, you know, this piece of jewelry and you can alert the authorities that you're in trouble and you can communicate your location to them too. There's also some other good web based platforms, too, that we dive into some of our blogs and ebooks that you might want to consider you know, minimal investment and it can help keep you safe. And one last thing I want to add is that if you do live in a winter or icy climate, please consider investing in a good set of winter tires. I cannot stress enough how much that makes a difference as far as the winter driving safety goes, if you don't believe me, just YouTube it.
JON: Yeah, you shared a video along those lines recently, and it is kind of crazy how much of a difference it can make. So, yeah. Yeah. Great advice. So Jeff wrote a recent ebook for us on agent safety, and I'll link to that in the show notes. Thanks Jeff, for joining us.
JEFF: Awesome, Jon, thanks so much for having me on the show.
JON: So now, getting back to low inventory. In the 2019 Profile of Home Buyers and Sellers, NAR stated that the median tenure for sellers was 10 years. For every year since 2008, that median tenure in the home has increased by one. In 2011, the median tenure was nine years, where it remained for three years before increasing to 10 years in 2014.
JON: Historical data of this number shows that a majority of sellers used to list a house that they’d lived in for between five and seven years, but then the housing bubble burst and the Great Recession battered the world economy in 2008. Since then, sellers have largely stayed put in an effort to maximize their house’s ROI.
JON: Housingwire reported back in February - before these lockdowns made us question our sanity on a daily basis - that a lack of available homes was already a serious issue. They stated that “The nation’s inventory of homes for sale tumbled 14% in January, falling to the lowest level since at least 2012. The supply of properties priced under $200,000 fell 19%, while homes priced $200,000 to $750,000 declined 12%.”
JON: For would-be homebuyers, this presents a major challenge, especially if they’re a first-time homebuyer unlucky enough to be searching for a house in that bracket of under $200,000. If fewer people are willing to sell their home, where can buyers turn?
JON: New homes should be a path forward, but construction still hasn’t fully recovered from the recession. Just before the housing crisis, basically anyone could get qualified for a mortgage. When a bulk of those bad mortgages defaulted, millions of homes went into foreclosure - which gave us the opposite problem of what we currently have. There were tons of homes, but no one necessarily looking to buy them. There were only 430 housing starts in 2011.
JON: Roughly 5 million homes were bought by investors and turned into rentals at that time, which is yet another way that people nowadays are not selling their property. If you can hang on to it and set your own rental prices to more than cover your mortgage, why not? Even though it’s made it cheaper and easier to find a great short-term rental, Airbnb has gotten a lot of flack in cities that already had tight housing inventory. It’s the reason that many places - Paris, Barcelona, and Santa Monica among them - have totally or almost totally banned the use of a property for short-term rental.
JON: Once the economy had crawled out of the hole of the Great Recession, builders gradually ramped up production again. The problem is that they weren’t building smaller, more affordable homes. The profits for builders was to be made in high-end homes, which sold for more and thus gained them higher margins. Millennials are officially America’s largest generation ever, numbering around 72 million people. In 2020, their ages could range between 24 and 39 years old, also known as prime homebuying age.
JON: Even at full capacity, there aren’t enough homes being made. According to U.S. Census data between 2012 and 2019, there were 5.9 million single-family homes built. During that same time, there were 9.8 million new households formed. So basically there aren’t enough homes being built, the ones they’re building aren’t the kind in such high demand, and America’s largest generation ever is ready to get into the game - only that there are no homes they can afford. Where do we go from here? After the break, we’ll answer that question.
JON: Real estate is so closely tied to the economy and world events that it can be exhaustive to keep up with the market’s ups and downs. But you - you like challenges. You enjoy the hunt, you love competition. Hearing about America’s low inventory problem gets you fired up and ready to fight for your clients’ dream home. If you’ve ever wanted to get into real estate - or to further build your career in a safe environment - then online learning is the way to go. Right now you can save 25% on your online real estate courses at The CE Shop with promo code SHOPTALK.
JON: The other trend that pops up in many recent stories about real estate has to do with remote work. Most office jobs have temporarily chosen to forgo the traditional workplace and all of its potential for spreading coronavirus, and during these last six months hundreds of thousands of people were relegated to working from their home office - many for the first time.
JON: Most people don’t have a designated home office, though, and even those who do typically use those rooms for things other than working. Things that seemed like a better use of space than a rarely-used office. It’s yet another revelation in 2020: that home offices might well be here to stay.
JON: Already many agents have reported seeing an increase in interest for the home office from their clients. Things that were formerly nice-to-haves have become essential in the eyes of the modern buyer: a big backyard, multiple spaces for working remotely, and community features like a pool or garden. COVID-19 has made everyone realize they’d been neglecting their home and hadn’t been using it to its full potential. Good luck if you happened to order new appliances during the last few months.
JON: The pandemic has also put the brakes on a growing trend over the last few years of not owning things. In many different ways, public sentiment seemed to be headed toward borrowing or renting things only when you really needed them. Community tool rentals are in every major city, and in downtown areas there are many who decided to give up their car. If they need one, they can rent one for a day with services like Car2Go but otherwise it’s a hassle best avoided. Same goes with electric scooters, vacation homes, and even clothes thanks to services like Rent the Runway.
JON: But in the wake of COVID-19, that trend has taken a hit. If you can only really trust the people you share a house with, then the best way to relax is to make that house as nice and welcoming as it can be. That might include buying that hot tub you’ve always wanted, or remodeling a bathroom or kitchen. For many, but obviously not enough people, that means selling your house and moving to greener pastures.
JON: If you’ve found that your market fits the bill for low inventory, there are still things you can do to help your clients find their own greener pasture. Offering above asking price is always a good idea when demand outpaces supply, but you could also offer a higher initial deposit. The industry standard is $1000 to bind the offer, but if your clients really want the keys then a $5000 deposit will make their offer stand out.
JON: As with any hot market, counsel your clients on the principles of hurry up and wait. The home search may take some time for them to win a bid, and it’s easy to get discouraged. Once they’re interested, though, you and they have to be ready to pounce. Show that they’re serious with their offer and ensure that nothing in the process is slowed down from your end.
JON: Any leniency your clients can give in their initial offer could be the difference between getting the house and not. If they’re able to, it’s a great idea to be flexible on move-out dates and rent back. If, for instance, the sellers haven’t yet found their next home, a generous rent back stipulation could make a huge difference.
JON: If the market is really tight and you know for a fact that you’re entering a bidding war, an offer letter never hurts. Home sellers like to know they’re selling their home to someone who won’t run it into the ground, and especially if they plan to keep in touch with any of their neighbors, knowing they’re selling to a decent person could help sway them in your direction.
JON: As with most things in this bizarre, otherworldly year, patience is paramount. The markets won’t be this hot forever, and it’ll be interesting to see what happens as we near the holidays. Whether you’re inundated with clients and few homes or your market is humming along nicely, one thing is true for today’s agents regardless of locale: real estate is never boring.
JON: That’s it for this episode of Shop Talk, thanks for listening! If you enjoyed the episode, I recommend you share it with someone else. You can leave us a review and subscribe on your podcast player of choice. Shop Talk is a production of The CE Shop.