One thing we can say for certain is that the North American housing market is shifting. But how much is the market shifting? The answer to that is uncertain. In the United States, analysts can’t even agree if the country is in a recession or not. According to the textbook definition — 2 quarters of gross domestic product contraction — the U.S. is definitely in a recession. But other analysts, including the U.S. Federal Reserve Chair, Jerome Powell, disagrees, saying other factors, such as high employment numbers, indicate that the U.S. economy is strong.
Another thing we can say for certain, at least if you buy groceries or fill your car’s gas tank, is that the cost of living has gone up dramatically in 2022. High inflation — the actual percentage is another one of those disputed statistics — is definitely happening across North America. In the U.S., Powell is raising interest rates in order to put a damper on inflation. But other analysts insist that this won’t work, since the current inflation is based on supply and demand and political issues and not in response to speculation. The Canadian Central Bank has also been raising rates and is expected to again substantially raise them this September, which could tip the Canadian economy into recession. Analysts have differing opinions on whether it will be a mild or deep recession.
Whatever their disagreements, all analysts concur that high inflation and/or high interest rates spell hardship for North American households and business. And as we know, that spells hardship for the real estate market. Most predict a heavy correction.
On the Canadian front, Desjardin Economics sees the coming correction as positive, “ helping to bring some sanity back to Canadian Real Estate” How much of a correction are they talking about? Quite a bit depending on the province, and how over-extended the housing market is in your area.
The Canadian Housing Market Shift
RCB predicts a 42% drop in house resells Canada-wide from the record highs in 2021 by early 2023. At this point, house resells have already dropped 32% since 2021. Increasing interest rates are keeping many prospective buyers out of the market. Variable mortgage rates are now on par with fixed rates, making cheap borrowing impossible. RCB predicts its aggregate affordability measure could be at its worst-ever level nation-wide once the Canadian Central Bank is finished raising rates.
The slowing market naturally affects house prices. In August, Desjardin Economics adjusted their housing price predictions for 2022 to reflect the rapidly falling number of house sales and the rapidly increasing borrowing costs. Desjardin now predicts a 25% drop in home prices in Canada by the end of 2023. The hardest hit provinces will be those that experienced the greatest increases during the pandemic as well as Ontario and British Columbia, provinces where housing was already overvalued.
The giddy housing high we’ve been experiencing for some time in Canada, especially here in British Columbia, is coming to an end. For how long? We don’t know, but as a realtor, it would be wise to shore up your business and be prepared for a recession marketplace. The following tips are good business practices anyway, no matter what happens.
Tips For Future Proofing Your Real Estate Business
Stay Informed on the Economy and Real Estate Market
The real estate market doesn’t happen in a vacuum, and even a downturn isn’t a uniform process. Pay attention to the overall financial picture in your area, and you may find market opportunities. Not all sectors or price points will necessarily contract. Sometimes a decrease in one area results in an increase in another.
If the market you usually serve is depressed, be flexible, expand your boundaries and look at different locations or price points. One way to do this is to think of what people might need in a difficult housing market. You might be able to help people with preforeclosures, expired listings or rentals. When the times turn again, they will remember and will come to you for their new house.
Build Relationships With Existing and New Clients
During downturns it is more important than ever to maintain and build relationships with people. Don’t just drop your past or existing clients if they happen to be experiencing challenges! As mentioned above, they will remember your kindness and help once the market changes. Human connection goes a long way to calm the anxiety of uncertainty. As well as taking care of your past clients, tap into your personal sphere of influence to drum up business.
To reach new people, expand your marketing online and increase your brand awareness. Focus on people who will need your services down the line — in a few months to a year or two. Organize it all in a customer relationship management system (CRM), so you can keep track of interactions and when they are ready, you will be too.
Join a Team
Joining a team will help mitigate the challenges of a slow market by sharing the load somewhat. You may earn a little less money, but you will most likely still be in business by the end of it. A team will help with leads, technology, marketing, and financial support.
The Take-away for Realtors
Provide value, reach out, communicate honestly, and stay involved — these are the basic values that will future-proof your real estate business in the coming downturn.
One way to stay involved and connect with other realtors is to attend our coming symposium on this very topic: Surviving in a Shifting Market: Future-proofing Your Business. Do you have ideas on where the housing market is going and how to survive it? Are you based in the lower mainland or on Vancouver Island? Join us on October 27, 2022 to hear tips from other agents, network and work out some solutions to the thorny real-estate market we find ourselves in.