SOTM 57: Tough Times Ahead According to KW Founder, Gary Keller

Aaron Amuchastegui: Real Estate Rockstars. This is Aaron Amuchastegui, and I am back with today’s State of the Market. State of the Market is where every week I come on. I talk to you about the real estate news that’s out there. I search for things that I think are going to apply for you in your business, and this week is no different. I’ve got 10 articles I’m hoping to go through in here and give you my opinion and how it might be actionable for you. We’ll see if I can get through all of them today.

Here we go. Today is September 16th. Right now, Keller Williams is in the middle of Mega Camp. I don’t know what percentage of our listeners are Keller Williams agents out there. I know a lot of you guys are and everybody today is attending Mega Camp. One of the things that already hit Inman’s front page for real estate news was from Gary Keller, and he’s talking to Jay Papasan right when it opened up. He says, “We’re going to have a tough year or two.” He said, “We’re going to have a year or two of tough.” The cover and CEO and co-founder outlined the two stages of what’s next for the housing market at the virtual conference.

The biggest thing he talked about is that the pandemic is a very unique situation and the timing on its resolution is uncertain. “The real estate industry is currently undergoing a K-shaped recovery. Essentially, there’s two distinct groups. They’re having 2 distinct experiences, which is why the economic uncertainty and high unemployment numbers are yet to be reflected in the housing market that’s outpaced the years prior in home sales.”

That’s a question of how do you guys have been talking about. I’ve said this a bunch. Half of our agents are busy than they’ve ever been, and half of our agents are really, really struggling. People are saying, “Why is the housing market so hot? Why are we getting cash offers over asking? Why are we getting multiple offers on everything when right now the world is so bad, there’s so much unemployment and everybody’s struggling?”

Well, that’s it, because there’s two different people out there that are experiencing this. Wealthy people right now in certain types of jobs aren’t really struggling during this pandemic as much as people at the lower end of it. Here he goes into a little bit more detail.

He says, “Unemployment in the leisure and hospitality sector of the economy was at 21.3% unemployment in August, while the financial activity sector with a 4.2% unemployment. What does that mean? People working in restaurants, and hotels, and entry-level jobs, a 21 percent unemployment. In the financial activities sector working at banks, in lending, and things like that, unemployment is only 4.2%, which means it’s almost full employment. That’s how people could be having such different experiences. That means the people at the top of the market are doing a good job, and the people at the bottom of the market are still suffering.

There’s a major divergence among age groups as well. One of the things, when it hits lower employment, is that typically faces renters. The renters right now are facing high unemployment. Home buyers are not facing as high by unemployment.” It says, “Unemployed rate for individuals 24 to 35, typically the age of first time home buyer was 9.7%, and they accounted for 25% of the home buyers in August.”

He goes on to say, “The people that make the most amount of money and have the most disposal income, and the men and women who make the overall majority of buying homes at 35 and up crowd are the least affected by unemployment. Their incomes have been affected the absolute least, unemployment’s been impacted by the least of major age group that’s why housing is still at a rebound.”

He also goes on to say that this can’t last, so right now businesses can’t be successful without the people that are the entry-level workers supporting and supplying those businesses. Right now when these first layoffs have happened, a lot of unemployment happens, the owners of the company are also struggling at the same level as the entry-level. That cannot last forever.

He’s saying right now the market has stayed strong. There has been high demand because of those people that are making the most money are the least effective but that can’t last without helping out the unemployment levels of the little guys.

It’s a great interesting talk. I wish I had listened to the whole thing. This was just a summary that Inman did. Maybe we’ll find that video and listen to the rest of it.

Here’s an interesting article from Inman. It says, “More realtors are carrying weapons for self-defense than ever before. An NAR Survey finds more than half the agents are still hosting open houses alone, but more agents that are carrying protection in the form of pepper spray and firearms.

Probably depend on the state you live in and where you are, but there’s been bad news as the news that travels. When something goes wrong, it is showing, that’s the stuff they talk about on the news. That’s one of the things that’s interest. They’ll say, “Hey, this happened at an open house.” People aren’t stopping open houses but says they are now protecting themselves as they’re doing it.

This article from Inman says, “Given that being an agent so often requires meeting with strangers, agent’s safety is a perennial topic in the real estate industry and one that often seems intractable. This in part because the vast array of agents are independent contractors and brokerages. Associations and multiple living service are reluctant to require personal safety protocols.”

It’s like saying they do wish that it was safer, but when everybody’s an independent contractor how can you really decide how they’re going to do their business in terms of safety.” It says, “This year’s member safety report from NAR found that realtors are carrying weapons for self-defense.” It said, “More realtors are carrying weapons for self-defense in 2020 than they were in 2019. The report also found 4% of the 3,000 response reported being the victim of a crime while working as a real estate agent.”

That’s terrifying. That’s such bad news. 4% of them said that while acting as a real estate agent, they were a victim of a crime. I guess that could be all sorts of things. Believe are not, that’s down 1% from the year prior. Some of the stuff was identity theft. Some of this was robbery and assault. Now, agents are out there, and they’re bringing some pepper spray with them. Honestly, there’s no harm in doing that. There’s no harm in bringing pepper spray or something like that as just a what-if. You’d never know what you can see when you’re out there.

We’ve seen squatters in houses. We’ve seen all sorts of things when we go to show house and someone had moved in ahead of time. When you go knock on that door it’s not a comfortable conversation to have. Here’s a little tip out there for most of the listeners that haven’t yet. Police officers and police stations are so great when you call them for a non-emergency status.

So often some of our properties in Texas, we have to call the police and we call the non-emergency hotline. When we say, “Hey, we’re going to order houses, it’s locked up kind of weird. Maybe everything’s fine but we would just feel so much better if there’s an escort there with us when we go to open that lock.”

Usually, within 10 minutes a police officer shows up and they hang out there with us. We’ve never had them give us a hard time when we’ve called the non-emergency line and just ask for an escort for something really quick. Every once in a while yes, we find something weird. There are squatters on the property.

This happened just a few days ago. A bunch of the locks were locked from the inside. We called the non-emergency because we thought somebody must’ve broken into the house and locked us out or it was really just a mistake. An agent that was showing the house locked the privacy lock and then walked out through the garage. So we were all locked out of the house. The police just laughed about it with us, no big deal. David, if you’re listening, I know you’re going to think that’s a pretty funny story that you were a part of.

Next, in the Inman article. This one just came out a couple of days ago. It says, “Mortgage applications declined. The volume of mortgage applications declined 2.5% the week of September 11.” What’s that really about? We’ve seen a lot of stuff in mortgage lately, and a 2.5% decline that’s not really that big of a deal. Not in my mind anyway, but we’ve seen a lot of increases.

It says, “The volume of mortgage applications declined 2.5% for the week ending September 11. The data included adjustment for Labor Day holiday.” It said, “On an adjusted basis the market composite index which measures mortgage loan applications decreased 13% compared to the previous week. Refinance index declined 4% from the previous week but increased 30% year over year.”

What does that really mean? It says, “Mortgages rates held steady last week and the 30 year fixed at 3.07% has now stayed near the 3% mark for the last two months. A 5% decline in conventional refinances pulled the overall index lower, but activity was still 30%. It’s saying there’s just 5% less refis, and that was the biggest trend that caused the small decrease in overall refinances.

One of the things we talked about in the news a few weeks ago was right now, for refinances, there’s kind of a penalty, there’s some extra fees to pay for a refinance for loans through some of the FHA and some of those different lending programs that are out there. You get a little bit better rate on a loan for a new purchase than you can for a refinance, and maybe that’s why refinances have ticked down just a little bit.

Here’s a hopeful piece of news. This is another one that came from the Keller Williams event today. It says, “Keller Williams’ President, 50% of your database is in jeopardy. Keller Williams’ president, Josh Team shared exclusive insight from Google that shows why there’s so much market share up for grabs right now and how agents can take advantage.” If 50% of your database is in jeopardy, that means right now you’ve got to be making sure that your database is going to stick with you.

That also means if someone else’s database is in jeopardy, you’ve got a chance of bringing those in. What I’ve talked about before, is in these falling markets where the world is a little bit tougher, a little bit more competitive, it gives everybody a chance to do good. Everybody looks brilliant in a really hot real estate market, not everybody looks good when it’s just a little bit harder for things that we may be seeing soon.

“Keller Williams’ president Josh Team believes there’s a tremendous opportunity for all agents to grab market share in today’s current economic climate. The data teams showed the conference mega camp but it also showed how easily agents could lose their own clients. The world’s changing, market share’s up for grabs, the people that are doing things in different ways have an opportunity to seize the moment.”

Now, here he goes into a little bit more detail. It says, “Team was joined by Jason Abrams, the company’s Vice President of industry told Keller Williams agents and brokers to look at their own databases right now, and essentially cut it in half. Those are your past clients, those are your family, those are your friends, but they are also the people that are open to trying a new brand that is offering them a safer, more comfortable, better way to buy or sell a home.”

Right now, the world is changing, and so people are open to change. People that would have gone with you no matter what, the desire to change and do things a little bit different in this changing climate will make them look around to see, “Hey, are there any other options,” and in times like this, people will start looking for their options again to go, “Hey, is there a better way because I’m not quite sure about doing it?” He says, “If you’re not re-imagining your business right now, you’re not pouring into making those calls, someone else is, and you’re going to be in jeopardy at this moment.”

Good news out there for you guys to think about. Stay on your database, reach out to them. A lot of the stuff we talked about early on in April and May, check with everybody. “Hey, how are you doing? What are you thinking about? Here’s what’s going on.” Believe it or not, I’m still getting mailers that say, “Hey, one of the houses in your neighborhood got 17 offers on it, come to us, maybe we should sell your home too. I’ve got 16 other buyers wanting to buy” – that’s a great pitch, even though I know other agents and people in the area I’m thinking, “God, maybe I should call one of these guys.” Marketing works right now, especially in a changing climate that’s so interesting.

Here is an article from Bloomberg, and this is something that we experience as landlords out in Texas, it says, “Eviction filings by big landlords surge after Trump issued the ban”. This article came out September 14th, it says, “Big landlords increase the number of eviction cases they filed after President Donald Trump announced his recent moratorium signaling the struggle tenants face getting protection from the federal order. Institutional landlords filed 900 eviction cases across 8 metropolitan areas from September 2nd to 8th, according to data compiled by the Private Equity Stakeholder Project. Landlords filed 165 cases in the same market just a month prior.”

It says, first week of August 165 evictions, first week of September, 900 evictions. It says, “Fears of an eviction crisis have swirled since expanded unemployment benefits, and the Trump ban enacted by the Centers for Disease Control and Prevention to avert homelessness during a pandemic was seen by tenant advocates as a way to delay evictions, but provides no funding to cover unpaid rent. We’re quite surprised by the number of filings we saw.”

As a landlord I can add a little bit of info to this. We had some people that have not paid rent in the last few months. Most of our people have. We’ve had the highest occupancy ever right now, but we had some of our tenants not pay, we filed eviction and we went through that eviction process. We just got these notices, and they signed this notice, and it was like a CDC form, a government form where they had to say “Yes, I can’t pay. Yes, if you evict me, I’ll be homeless, I have nowhere to go, or I’m going to have to live with a friend and increase their cause of coronavirus”, and the judge took that and he extended the writ to January 4th.

This was a Sheriff move-out writ where he’s supposed to be giving the Constable a writ to go move the tenant out because they’ve already lost the eviction hearing, and now that got postponed automatically to January 4th. This is in Texas, which is a very landlord-friendly state, so a four-month delay, super super crazy, I was shocked to see it, and now that’s getting pushed back. We will see what else might come of that, but they’re saying as a result when they were going to postpone that, a lot of people rushed to go to try and push an eviction through to see if they could push it through in time before that ban really took effect.

Now the ban is in effect, no one will be evicted now until January 4th, especially if it happened in some of the counties that happen to be so landlord friendly.

I think there’s probably opportunities there, I think what it tells the people and I even talked to David Green about this on one of our things where it’s just about going and having new conversations with the people. That their credit is still important, it’s just about telling them, “Hey we want to work with you. Now that you’ve done this form let’s see what else we can do to keep this going.” It’s not just a free reign where they’re not supposed to pay at all.

It also says that if they lie on there and say that they would be homeless, it’s kind of a criminal act if they’re lying. I don’t know how someone would press charges on that or not, but that’s one of the documents that they sent to us when they extended it to January 4th.

Next article. This one is in Bloomberg, Prashant Gopal, September 16th. “Las Vegas home price surge spotlights the disconnect in the US economy.” This is really interesting. There’s a lot of things like we just talked about at the beginning with that Keller Williams article. “Las Vegas home prices surge,” so it’s saying prices are going up like crazy, but it’s shocking because there’s so much unemployment there, especially with how many people work in casinos, hotels, and restaurants. The median price for a single-family home in August jumped almost 10% from a year earlier up to $335,000.

It went up $30,000, according to a report by Las Vegas realtors. The annual price growth in February that month, before COVID, was only 6%. A lot more growth, but everybody has seen that though, with less inventory comes a lot more stuff. Buyers from high-cost markets like California and New York are drawn there because of low rates, because Nevada’s lack of income tax, and other demands that are pushing it there, but like we talked about at the beginning, these aren’t the entry-level buyers.

These are buyers that are doing well in this current economy and they’re coming in and pushing prices up because they have no problems, especially people coming from California and New York. The median house price is $330,000 there, it’s a lot higher in most of California, it’s a lot higher in most of New York, so what they’re doing is, they’re saying, “Hey I’ll pay $20,000 over housing because it’s still $200,000 less than my last house.” We’re seeing that even as we get out of the Bay Area into Northern California as we get near Sacramento County, we’re seeing a really big boom and push of San Francisco buyers over-paying for real-estate because it’s so much cheaper than in San Francisco.

Another article, it says Bloomberg, “Fed signals rate stays near zero for at least three years.” This article came out September i6th. It says, “Fed on hold until inflation at 2% set for moderate overshoot. The federal reserve left interest rates near zero and signaled it would hold them there through at least 2023 to help the US economy recover from the coronavirus pandemic. The Federal Open Market Committee expects to maintain an accommodative stance of monetary policy until achieves inflation averaging 2% over time and longer-term inflation expectations remain well anchored at 2%. The central bank said in a statement Wednesday, following a two day policy meeting.”

I think that’s just saying, people have said,” Well, interest rates can’t get any lower.” Some people had questioned, could it actually get negative like we’d seen in Japan and some other things throughout the years. It’s saying right now, they’re just going to leave interest rates there with the hope that if the market’s struggling, if they leave the cost of money cheap, then it’s going to help with growth. That is something that traditionally always does help with growth.

Next article on Forbes. This is something a lot of you guys have seen in the news talking about you guys reached out to me on social media about it, asked me what I thought. It says,” Opendoor’s co-founder talks, COVID growth and the question profits as the company goes public. The market reacted kindly yesterday. The news that Opendoor a technology startup that lets customers rapidly sell their homes will go public through a merger with a blank check company. Shares of it soon to be acquired soared 35% during normal trading hours before falling 7% early on Wednesday.”

The soon to be acquired the company that was going to buy Opendoor, their stocks went up 35% after the announcement. It says, “The deal gets Opendoor an enterprise value of $4.8 billion and is a breakthrough for the industry it helped pioneer, but while Opendoor dominates the rapid home selling marketplace also knows as ibuying with roughly half of its market share, there’s scant proof of the company, let alone its small profits, has devised a plan to profitability.”

Man, I remember back with Facebook when we thought about the idea of this company is losing money all the time, why is it worth so much money? They had a way that eventually they were going to turn on advertisements and it was going to go through the roof. That hasn’t happened everywhere yet. Opendoor is saying it’s not really making money. It’s making a very small amount of money and getting an enterprise value of $4.8 billion.” Usually that happens if they believe, hey, but they’ve mastered a method and if they just make some small changes, that method and scale, it is all of a sudden they become hugely profitable.

Now, if I’m just going to do my little opinion piece, I do not think that Opendoor is going to be a good long-term investment. I can’t believe they have a $4.8 billion valuation for a home buying company. Now, a lot of it’s out there and everybody’s bidding big on these iBuyers. They think it’s really helpless with Zillow’s valuation. Everybody’s trying it but so many of us are thinking it is not sustainable, especially as the market changes. The last few years, the market’s gone up again, makes everybody look brilliant. Right now as the market’s going to correct, go down, stay balanced out. It’s going to be a lot tougher for an iBuyer to be successful.

Here’s my last article, which is going to be probably a little bit of fun stuff. A little bit of not so fun stuff. This was from Forbes and this is from Tri Nguyen. It says, “What’s in store for home buyers in the final months of 2020?” It says, “The founder and CEO of Network Capital Funding Corporation was writing about this article that Forbes picked up. It says,” Unless you have just emerged from under a rock you were living for the last few months, there’s an undeniable reality that steps taken to protect the public’s health, have staggeringly chilling effect on the American economy.”

It has a bunch of different highlights that we need to think about. “42% of jobs lost to coronavirus will be eliminated for good.” Did you hear that? 42% of the people not working right now because of coronavirus, those jobs are going to be eliminated for good. “Reports say as many as 40 million US jobs were claimed by coronavirus at one point in late May.” That’s really saying, they think like 16 million of those jobs are out. 16 million jobs no longer available.

It’s not just about people finding other places to go work if the jobs are completely abandoned. “The current American recession that could proceed an eventual depression,” That is a pretty big statement to make there but this is that statement coming from the headline in Forbes,” Unprecedented impacts on the lending landscape while some banks have granted forbearance agreements for mortgage effected, others have not.” Most of them have had foreclosure moratoriums put on them, but private lenders have not and how is that going to affect lenders to begin with?

Lenders in the past, the only way that their security for lending on a property or lending to non low qualified buyer was the property. What are they going to do now? Is it going to be harder for people to get loans? Are they only going to sell house to people that are super qualified? I think right now, landlords are doing that. Landlords are now looking at multiple applications for property instead of one and instead of just taking the first person that qualifies, they’re going to look at all three or four applications and say,” Hey, who makes the most money? Who has the best credit score? Who’s willing to pay a few months rent in advance?” There’s a lot of different things that people are looking at now.

I think changes that industry because when you start doing all these different things, it’s going to change the way that people are doing business. It says,” Possible changes that lending industry regulations that maybe.” I said this a little bit early. “The working class of American people taking the brunt of the economic hit, the federal government has shown that they recognize the precarious position bill paying consumers have,” and so they issue top-down mandates to relieve that burden, but it says, “I hope that this relief will continue to find its way into the lending industry in the coming months those are the mortgage payments could see an opportunity to refinance.”

That’d be nice if people are able to refi their forbearance agreements in, and maybe that makes the lenders happy because they’re able to maybe if they get some points on that refinance, there’ll be happy with that pushing in there. “A shortened period for approval for refinancing applications, a general opportunity to lock in more favorable terms.” Now this sounds like good news so far for most people. “Trying economic times, especially those largely impacted because the federal mandates want borrower friendly protection.”

He’s saying he’s hoping that it leads to a lot more borrower friendly protections. I see the point in that, but I also know that the more borrower friendly protections they have in there, the tougher it’s going to be for banks to want to lend, unless the government gets a lot more involved in lending, more than they already are. Does a steady re-emergence of housing inventory. The verdict is in how coronavirus initially impacted housing inventory. Total housing inventory down 24% by mid may. That’s crazy, right? Went way way down. It said, “Those who have been hesitant to sell their homes will now emerge and start to sell and that we’ll see more houses on the market.

I think most of you agents out there will welcome that, you guys are hoping that’s going to happen. This guy is saying,” Hey, it’s going to happen before the end of the year.” A shift in home buyer demand will go toward more affordable locales. We’ve been talking to us like crazy. People will be leaving the cities and going to more affordable areas because they don’t have to live close to work anymore. First time home buyers will seek more affordable markets homes in many affordable markets are being purchased right now at a rapid rate. Almost expensive markets may also be tough to find places there, they’re still probably just a factor of limited supply.

It’s only logical that those have been personally impacted by the economic tremors of COVID are going to downsize. That’s something I’ve been saying for a long time. The best solution for everything right now is downsizing. That’s what happened back in 2007 and then that’s what we’ll start to see now. “Possible effective current and near future market conditions because as of now, housing America is generally defined by an inventory shortage.” Rising home prices do enlarge the limited supply. “Some of the effects of these market conditions are good with access to low interest rates, but they’re unintended negative consequences.

A locked in mortgage rate that is favorable, could reduce the number of motivated sellers once the rates rise again.” Wow. Now that’s a big impact people are talking about, right. If right now rates are super- super low, and prices might be at a peak, why would this person sell in a few years? It’s saying it’s actually going to add to the inventory problem because if rates have never been this low before, it’s going to take a miracle for somebody to want to sell their house when rates are going to be so much harder. It’ll be like when people are changing.

We talked about when rates go down, people can afford more house. What about in a few years after that 2023 mark rates go up? Are people going to want to be selling that house? Probably not because they would have the same payment to actually be downsizing. That can be really unique as it goes. There’s a lot of different news there and a lot of different pieces that we just talked about. It was really interesting to see and think about, there are two different economies happening right now, and there’s probably like four or five different economies right now.

I really liked at the beginning, how Gary Keller broke up the idea of people at one end of the market there’s only 4% unemployment rate. People at another end of the market, 20 something percent unemployment rate. That’s why we can see bad news and houses selling record amounts, but also see other people struggling and not sure what to do. Man, there’s so much news packed in there. Real estate rock stars, thank you so much for listening. If you got some value out of this, I would ask that you please go ahead and share it. We’ve been sending out a ton of good stuff out on our newsletter too. If you’re not on our newsletter yet you just have to go to hibandigital.com.

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