Early this year, an executive of a large real estate company decided to unload a $2.25 million rental property in Southern California.
At the time, he was expecting multiple, all-cash offers on a pocket listing. Remember those relics from the past?
That was before inflation hit the north pole. Before Putin’s tanks rolled into Ukraine. Before the economy sunk into a recession. Before it cost a Benjamin to fill up your tank. Before corporate earnings went the wrong way. Before the stock market fell off a cliff. Before consumer confidence waned.
Before rising mortgage rates cracked the spine of an otherwise healthy housing market.
The perfect storm
In the meantime, our SoCal real estate executive waited until this summer to list his property.
After several price cuts, he closed for $1.75 million — 20 percent off his price expectations. He was caught off guard by how quickly things deteriorated.
The housing market is the last sneaker to drop in the sagging economy. Real estate was in a lucky place during the pandemic, but in the last few months, it has gone over to the dark side.
No corner of the housing industry is immune from the vagaries of this new and unfriendly market.
Fewer people are searching for houses, shrinking the lead pool for agents and hurting the earnings of the portals.
The number of transactions is plunging and prices are close behind. Housing demand is at a seven-year low.
Many teams will break up as the size of the commission pie shrinks with fewer slices to pass around.
Broker-owners with shaky fundamentals will be tested. Those who are over-leveraged with fat cost structures will struggle to stay afloat.
As cash flow dwindles, the sins of poor management begin to show.
The large franchise companies are slashing their costs, with marketing and technology head count the first to go. Their third quarter earning reports will not be pretty.
Software companies are already feeling the pinch too, as are other proptech firms, like the power buyers. Competing with all cash buyers is no longer a problem that consumers need to fret about.
Many startups will pivot their business models. For some, it will be a last gasp.
Middle managers will be hit the hardest as company layoffs accelerate. Many agents, mortgage brokers and title reps will leave the business.
Opportunity will emerge from the muck
The listing inventory will grow as the economy worsens and more homeowners are forced to sell. Already, a growing number of bankrupt sellers are unloading their homes.
An oversupply of unsold new home inventory — now seven months — is piling up.
Homes may be harder to sell, but experienced agents will dust off their old playbooks, double down and see their clients through the quagmire.
Buyers will be the winners, with more options, lower prices and friendlier terms. Affordability will remain a problem, as interest rates rise, but buyers will no longer overpay for their investment.
Opportunistic investors, as always, will make out, once prices decline.
Wall Street will go one of two ways: accelerate their single-family home acquisition programs or dump their holdings.
Either way, they will be back later, bottom fishing.
Is this really what’s unfolding?
I wish it wasn’t.