5 Hot Property Trends To Help You Prosper In 2022

Underwater sellers, frothy prices, affordability walls, inflation and interest rate increases — how will all this play out in 2022? More importantly, where are the best opportunities to grow your business based upon the actual data, not simply someone’s opinion?

For more than 25 years, Attom Data’s RealtyTrac has been the go-to resource for updates on foreclosures, underwater sellers and other important trends that impact the residential real estate market.  I recently interviewed Rick Sharga, the executive vice president of RealtyTrac, about the trends they’re seeing in their data, as well as what to expect in 2022. 

Here are the five most important trends Sharga discussed during our interview, along with how to capitalize on each trend to generate more leads and close more transactions in 2022. 

Millennial demand for housing peaks during the next 3-5 years 

According to Sharga, the largest portion of the millennial generation is currently between ages 29-32. RealtyTrac’s data shows the prime age to purchase your first home is 33. In other words, the next three to five years will see the demand from this age cohort peak.  

After this large cohort ages beyond their mid-30s, Sharga expects a more balanced market. He also believes that interest rates will normalize even though the Fed currently plans to raise rates at least three times this year. 

Business-builder tip No. 1: the hottest place to prospect right now

Would you like to spend your time prospecting where your conversion rate will be 35 percent to 45 percent? According to the 2021 NAR Home Buyer and Seller Generational Trends Report, 45 percent of millennials age 22-30 had been in their home two to three years when they decided to sell, and another 35 percent had been in their homes four to five years. 

You can target this group through a paid list from Attom Data Solutions (the parent company of RealtyTrac) or REISource.com. Facebook and Google ad campaigns allow you to target specific demographic groups. You can also contact your local title company to get a list of owners who have been in their homes between 2-5 years and are between the ages of 22-30. 

This approach not only generates a listing, but a trade-up sale as well.


The move from high-tax, high-cost areas to low-tax, low-cost areas

The pandemic escalated the trend of people moving from high-tax, high-cost areas to low-tax, low-cost areas, most notably in the Sunbelt.  According to Sharga: 

People started moving out of those urban areas into not just the suburbs, but the far suburbs and even adjacent rural areas. They also started moving from high-cost high-tax areas to lower costs, lower tax areas because the pandemic allowed a lot of professionals to be able to work from home and that could be wherever they wanted home to be.

We’re not yet sure if this is a cyclical change or a structural change, but people started looking for bigger homes because they wanted space for a home office. If they had to home-school their kids, they wanted more space between homes because they felt that was a healthier environment than the high-density environment they faced in urban centers.

The RealtyTrac data shows that people are often moving a couple of states away from where they used to live. For example, many California residents are moving to Idaho and Utah. They’re cashing out of their expensive homes, taking the equity they just captured and leveraging that to make a big down payment on their next home. Coupled with historically low interest rates, this has kept these payments reasonably affordable for people whose wages are increasing.  

Business-builder tip No. 2: You can still make money from clients who have relocated outside your area 

The primary reason clients do not hire their former agent for their next transaction is the agent failed to stay in touch. This is especially true when a past client moves out of the area. 

Here are three reasons why it’s incredibly important to stay in touch with your past clients who have relocated elsewhere. 

  • The person who relocates outside your market area still has all those contacts where they used to live. To tap into these contacts, send them a detailed report on the new home they purchased. You can obtain these reports at no charge from NARRPR.com and Attom Data’s HomeDisclosure.com.  

Next, ask if any of their family, friends or past colleagues who still live in your area would be interested in receiving a detailed report about their home plus a comparative market analysis (CMA) update on the value of their property. 

  • Many people who have relocated their primary residence to a less densely populated area are finding they miss the urban life and are moving back to the urban center where they lived before. 
  • For those who kept their in-city residence and bought something outside the city, many are having to choose between selling the more expensive property in the city or permanently moving back into town. This is an excellent way to earn a referral fee, either by leveraging your company’s relocation network or through one of the referral companies. 

Foreclosures are down by 76 percent 

According to Sharga, the normal foreclosure rate is about 1 percent. Today, that number is 0.24 percent. In other words, that’s 76 percent lower than normal. Sharga doesn’t believe that the rate will be back to normal until early 2023. 

Nevertheless, of the homeowners who are in pre-foreclosure, 87 percent have positive equity in their homes. Given that there are approximately 84 million single family homes in the U.S.  and approximately 62 percent have a mortgage, according to the U.S. Census Bureau, that’s about 120,000 homes nationally. As you can see in the Business-builder tip below, that can be 100 homes or more depending on the size of your market area. 

Business-builder tip No. 3: Prospect pre-foreclosure clients to help them sell and save their credit

According to Sharga, 87 percent of pre-foreclosure clients have positive equity in their home. Three resources for locating pre-foreclosure clients are Foreclosure.com, RealtyTrac and Oodle Market Place, the largest classified ad aggregator in the U.S. 

Foreclosure.com and RealtyTrac offer subscription services that allow you to set the parameters for the types of property you would like them to locate for your clients. My recommendation is to use RealtyTrac because of their long history of being the leading data source for distressed and foreclosed properties.  

If you don’t want to subscribe to a service, you can use Oodle. When I searched “real estate” and “foreclosures” in Austin on Oodle, the search yielded 272 properties whose owners are behind on their payments and/or are currently in foreclosure.

Oodle doesn’t provide the exact property address, but it gives you the street and the city where the property is located. You can have your local title company or REISource search for properties on those streets for “Notices of Default.” 

For owners with positive equity, you can call, door knock or send them a letter explaining how they can sell in today’s heated market and protect their credit. Granted, they may not want to move, but it’s better than losing their home in foreclosure, getting no money from the sale and ruining their credit. 

Underwater homeowners — a major opportunity

According to Sharga, approximately 5 percent to 10 percent of the homeowners in the U.S. are still underwater on their mortgage — they owe more on their property than it’s worth currently. As prices have soared in most areas, that number is decreasing. Even so, that translates into somewhere between 2.7 and 5.4 million property owners. 

Business-builder tip No. 4: Dust off your short-sale skills

If you have REO and short-sale experience, you already know how to work with distressed property owners and what it takes to close a short sale with a lender. Paying for a service to locate these properties, including identifying the lender, is well worth it. You have two major opportunities here:

  • If you have investor clients who are open to purchasing this type of property, contact them and secure a Buyer Broker agreement that includes your commission. Since these agreements are like listing agreements and are for a specific amount of time, you can bring multiple properties to their attention, including those where a foreclosure sale is imminent. 
  • If the homeowner is in default, check with the lender to see if they’re willing to consider a short-sale offer. If so, ask about what will be required of both you as the agent and the homeowner in order to sell.  

If doing a short sale is feasible, reach out to the owner, explain how the short-sale process works and obtain a one-party listing for any buyers you may have. (You can also go after obtaining a full listing, but only attempt this if you have done short sales in the past. It’s a complex process with a steep learning curve.) 

Price reductions ahead as ‘frothy’ prices hit the ‘affordability wall’ 

Sharga says the economists he relies on expect about a 5.7 percent price increase this year with interest rates at about 4 percent by the end of 2022. Coupled with inflation, this will create an “affordability wall” that will “start to bring things back closer to being realistic.”

Sharga doesn’t believe we’re in a bubble due to the strength of the demand and the high quality of loans being made today compared to previous downturns. Nevertheless, he says:

We certainly can’t have the 16 [percent] to 19 percent appreciation we saw in 2021 for a very long before we do enter bubble territory. That’s just a given. I don’t think we’re in bubble territory yet, which is hard for me to say out loud when we’re talking about a year when prices went up by 16 percent nationally and 45 percent in places like Boise, Idaho.

Sharga went on to explain that part of the rise in prices has been due to the lack of inventory in the first-time buyer market. This has resulted in fewer first-time buyer transactions, which declined from 35 percent to 36 percent to 30 percent to 31 percent in 2021. As a result, he doesn’t foresee any major changes in this market segment.

Anecdotally, however, he noted they are starting to see price reductions in the high end of the market in the San Francisco Bay Area, coastal California and the Pacific Northwest. He also said that given how fast the Austin and Dallas-Fort Worth markets have appreciated, they may expect price reductions as well. 

In other words, if you work in an area where the appreciation has been 15 percent or more, you may be seeing some price reductions this year, especially in the higher price ranges in your market.  

Business-builder tip No. 5: Track absorption rates to predict where your market is heading

This is a back-to-basics tip that has withstood the test of time. Almost all MLS providers track months of inventory on the market. Changes in the number of months of inventory are the best pre-cursor for predicting what prices will do 6-12 months from now. 

To interpret what will happen: 

  • Five or fewer months of inventory indicates a seller’s market with increasing prices.
  • Six months of inventory indicates a transitioning or flat market.
  • Seven months or more of inventory indicates a buyer’s market with decreasing prices. 

The secret here is to track how much inventory is on the market in the niches you serve, rather than tracking the overall market. 

One of the best ways to succeed in any market is to follow the data. Focus your prospecting efforts in areas where there is high turnover in listings (as noted above) and help distressed homeowners keep their home or sell it before they lose it in foreclosure. Finally, track market statistics to see which way your market will be trending so you can be prepared for when your market levels off or starts to decline in value.  

Source link