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The real estate industry took a beating in 2023 — rising mortgage rates froze home sales, consumer sentiment slid to new lows, several landmark lawsuits threatened buyer-broker commissions, and the National Association of Realtors couldn’t keep itself out of trouble.
Agents and consumers have been eagerly waiting for the storm clouds to break in 2024, as the Federal Reserve dangled the possibility of several rate cuts, the first of which is now expected to come midyear. While industry professionals may be ready to trade their raincoats for sunglasses, Keller Williams co-founder Gary Keller is preparing for another round of bitter headwinds.
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Gary Keller | Credit: KWRI
“You’re in winter right now, and it’s going to stay winter for a while,” Keller said during his keynote at the KW Family Reunion conference on Tuesday. “If you were hoping this year would give relief, that’s not going to happen … The market isn’t going to give you anything for a little while.”
Blame it on the Fed
Keller said the Fed’s inflation policy will continue to stifle the housing market, all in the quest of avoiding a wider economic fallout. Every recession over the past 59 years has been caused by the government or the banking sector, he said, and the housing industry has often had to bear the cost of bad decision-making.
“The Fed wants us to come right up on the border [of an] economic recession. But right now, real estate is in a recession,” he said. “You are in a recession, but the economy’s not in a recession. As long as they can keep us in a recession, and keep the economy out of a recession, they’re going to keep rates high.”
Although the goal is to rush the housing industry out of its recession, Keller Williams Head of Industry and Learning Jason Abrams said the consquences could be negative.
“We could come out of a real estate recession and then the whole economy could go into a recession,” Abrams said while garnering a few nervous laughs from the crowd. “I hadn’t considered that because usually, you go from a tough time to a good time. The idea now is all of us going from a tough time to a tougher time.”
Even if the industry moves from one recession to another, Keller and his crew said there’s still plenty of opportunity for agents to thrive amid swirling headwinds. Despite the precipitous drop in annual single-family home sales from 6.1 million in 2021 to 4.1 million in 2023, 4.1 million sales is right on the 35-year trendline. The total market transaction volume in 2023 ($2.09 trillion) was the third-highest in 25 years, even as sales dropped.
“Businesses and careers are really built in tough times, not easy times,” Keller said. “Right when the market recedes, the market goes flat. If you can hold your ground during that time period, you are set up for the next five to 10 years.”
“You will make your money no matter what industry you’re in,” he added. “You have to find a way to hold your own during this.”
Although consumers are still struggling to accept 7 percent to 8 percent mortgage rates and national median home prices above $380,000, Keller said agents must help buyers and sellers understand the current market through a historical lens.
“If we allow [consumers] to wait for rates to come down, which may not happen that soon, I don’t think we’re doing our job,” said Jay Papasan, KW vice president of strategic content. “Forty percent of the homes out there are mortgage-free. We have all of these homes that are locked into low rates. We need to tell them, ‘Well, why not?’”
“Keep your home and rent it,” he added. “Maybe owner finance your free and clear home [and] use that revenue to finance the difference in the new interest rates.”
Beating inflation
For millennials, Keller said the advice should revolve around using the coming years to tackle debt and shore up their savings accounts in preparation for homeownership and other financial goals, such as retirement. Abrams said the average saving rate dropped from 11 percent in 1990 to 5.7 percent in 2023 and signals “a big shift” in the way Americans think about money.
“Millennials are not buying because of the cost of money. They’re not buying homes, not buying cars. They’re not setting aside retirement money. They’re buying experiences instead of real estate,” he said. “I’m not saying you can’t spend your money, just don’t spend it now.”
“If we could get that [1990] savings rate right now, if everybody just saved 10 percent of their income, all of our [economic] problems can be solved within a year,” he added.
Although they agreed with Keller’s savings advice, Gonzales, Papasan and Abrams acknowledged the issue with sticky inflation — the term to describe the slow decline in the prices of goods after a period of inflation — and “greedflation,” a term they coined to describe businesses that continue to raise prices without reason.
“I do think it’s important to remember that even though inflation is coming down, all that means is that prices are still going up, just slower,” Abrams said. “Because when you look around it, to me everything feels really expensive.”
“We know this from housing; prices are sticky up. They go up like rockets and they fall like feathers,” Papasan added. “If you’ve already got the price out there, unless you’re trying to put down a competitor, why would you lower it?”
Much like tug-o-war between the housing industry and the wider economy, Gonzales said a sudden drop in prices wouldn’t yield the positive effect that most want.
“We don’t want prices to go down,” he said. “If you think about it, if everyone’s prices went down, every company’s revenue would go down, and that means everyone’s income has to come down, too. That wouldn’t be ideal.”
Target the opportunities
Even though 2024 won’t be the balm agents hoped for, Keller and his team said agents can still thrive amid the storm. Keller highlighted distressed sales as a point of opportunity, as today’s distressed homeowners have plenty of equity they could use to get back on solid ground.
“[Homeowners] have options today, but if you’re not out there talking to people and having those conversations, how would they know?” he said. “Real estate is a contact sport. Hang out with five or 10 people, sit down and have a long lunch or a long dinner, and talk about your local market. Fearlessly talk to people about what’s really happening.”
Abrams said agents fear looking like an “ambulance chaser” when seeking out distressed sales, but he said it’s better than allowing homeowners to fall into foreclosure and risk being permanently pushed out of the for-sale market.
“I was holding a session about people that are late on their payments and how to help them, and someone said, ‘That’s kind of like being an ambulance chaser,’” he said. “I was a little bit taken aback by it because I was thinking, ‘If these hands could do surgery and save people, I’d be chasing every ambulance in town.’ I want to find the people that need the most help, and then help them.”
Keller said agents can find a myriad of ways to be successful if they learn to look at disruption — technology, changing industry practices, new business models, etc. — not as their downfall, but as a stepping stone to greatness.
“Look at the antitrust lawsuits. We tried to win; we did not win. Then we looked up and realized that the right thing to do was to settle on behalf of everyone in this room. And that’s what we did,” he said to thunderous applause. “Please understand this is an active lawsuit. It is ongoing, and as a result, you’re not going to get any of us to talk about it.”
“So our response to all of that was to write a course not to talk about the lawsuit, but to answer the question, ‘How do we go out and how do we run our businesses?’” he added.
Keller and Abrams said agents should be focused on building an expansive knowledge base, mastering the basics, and effectively stating their value proposition as consumers bite back on the current commission structure. The duo said agents should strive to be the first agent to offer a consumer the power experience, honesty, trustworthiness and a good reputation — if an agent can do that, they can win.
“If you’re not number one or number two, you’re not in the game,” Keller said.
