I never considered myself lucky that many of my early years in real estate were spent in the proverbial real estate tank with a shortage of life jackets. But in retrospect it was the ultimate University of Real Estate. Every day in our business should be a dress rehearsal for the next market downturn – it is inevitable. What we are facing today is truly mild compared to previous downturns although it doesn’t seem mild if you are the builder with unsold inventory and mounting interest bills.
“I think we have a lot to learn from the guys who weathered the early 1990s,” said a custom builder from Northern Virginia. There is some truth here. 1990 was the worst year of my life. The havoc and economic losses to builders and developers was staggering. Did those survivors get back to basics? The survivors are the ones who got real smart, real quick. It took working smarter and harder. And never, never, never…giving up. In the early 1990’s the financial soothsayers predicted that residential real estate would never again serve up big profits. But of course the real estate market did recover and became bigger and better, just like the stock market. And the cycle continues.
The market is adjusting. We have to get rid of the excess inventory (including the inventory created by increased foreclosures) before absorption will come back in line with reduced demand. Prices will inevitably settle to the market. Denying market price levelers will only put us further behind the eight ball. That is pretty basic economics which won’t be ignored by the survivors. Is it a good time to buy? I think so! Will the next generation of housing be effected by rising material costs due to the demands from China, India, and other emerging markets? Will immigration reforms result in increased labor cost? Most definitely. Does anyone remember interest rates at 20% or the refinance wave when rates leveled at 12%. You had to be a genius to sell anything at those interest rates and an idiot to buy. (I did both!) If you apply a historic and a futuristic perspective to the question of buying real estate now, I think the answer is clear.
So how do we weather the storm? Bottom line, the conversion ratio has to go up – more prospects visiting your property have to be converted to buyers. Very basic. How? We hone our skills quickly. We survive. In the years following 1990 our conversation ratios climbed to between 10% and 15%. I like to think we honed our skills. The experts nailed it.