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Your recession strategy

The recession is here. The question is: what’s your plan?

If you have yet to set a strategy, there are a couple of options — each promising varying levels of success.

There’s the wait and see approach, which involves behaving as you have during the prior two years, when home sales volume was rising and prices were speeding past record heights. But home sales volume is now falling, and home prices have completed an about-face. Placing hands over ears will not change these facts. It will ensure your business flatlines.

Real estate agents who want to see their business continue to grow and thrive in the lean years ahead; consider planning for the downturn to continue, deepening into a real estate recession.

During the as-yet undeclared recession, California real estate professionals can expect to see:

  • sales volume continue to regress in 2022-2024;
  • prices collapse toward the mean price trendline, hitting bottom around 2025;
  • traditional listings all but disappear while prices are falling;
  • a return of speculators in 2024, followed by longer-term investors once prices have clearly bottomed; and
  • end user homebuyers pile on in greater numbers starting in 2026-2027.

Thus, a real estate agent who continues to rely on a steady stream of regular buyer/seller clients in 2022-2025 will see their sales numbers plummet. To earn a livable income, they will need to embrace investor sales and turn their attention to buyer clients. In times of economic recession, this means building connections to be first in line when real estate owned (REO) property hits the market.

Related article:

The Fed bumps up rates again — the undeclared recession is here

 

Do you have your recession buddy?

Relationships are key to a career in real estate, in the good times — but especially the bad. Real estate brokers and agents are already well versed in forging relationships with clients, through such time-tested tactics as direct mail marketing, FARM letters, throwing mixers and the like.

But agents will need to broaden their horizons as we head into the housing market’s recession, forming relationships across lines not typically muddied.

We’re talking about lenders, mortgage loan originators (MLOs), escrow officers and other mortgage industry insiders.

When home values fall, traditional (positive equity) sales become few and far between. Therefore, real estate agents who are used to FARMing for listings will need to change their strategy to focus on buyers, and widen their breadth of knowledge to include investment properties.

MLOs are the ideal insider contact to have during a recession, as they have their finger on the pulse of new REOs before they get assigned an agent and become available on the multiple listing service (MLS).

Gaining a direct line to MLOs is one way to make sure servicers of REO property reach out to you first to manage the sale of REOs. They will also clue you in to REOs before they hit the market, enabling the homes with the best investment potential to reach your desk before they become available to the masses.

Strengthen your MLO relationships by growing your network together, sharing contacts as equals in the transaction. Have candid conversations with your MLO colleagues about where the market is heading and ask directly to be involved in their future business.

Even better, obtain your MLO endorsement through the California Department of Real Estate (DRE) and become an insider yourself.

Activities a DRE-licensed individual may perform with an MLO endorsement include:

  • mortgage brokerage;
  • mortgage servicing;
  • the negotiation of mortgage modifications; and
  • short sale negotiations. [Calif. Business and Professions Code §10131(d)]

Related article:

Letter to the Editor: Explaining California MLO licensing and endorsement

 

Sell at the top, invest at the bottom

Another way to cash in on the coming REO wave is to prepare to invest or facilitate property investment.

Smart investors buy when the market is at a bottom — but during these down times, when cash is king, real estate investment can be a hard sell. A real estate syndicator works with the cautious investor, creating a limited liability company (LLC) of cash investors who may otherwise be unwilling to individually purchase property during a recession or early recovery period. [See RPI e-book Forming Real Estate Syndicates]

The real estate broker who negotiates the acquisition of the property and organizes the group is known as the syndicator or manager. The broker also performs property management services during the group’s ownership of the property, and handles the resale of the property, set up to earn and eventually profit from a long-term rental property investment.

Related article:

Real estate syndication, explained

You may be tempted to view this downturn as a burden on your business — or, you can use this opportunity to innovate, learn new skills and grow your contacts. Use 2022’s housing market slowdown to set your business up for success in the years to come.

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