In today’s real estate world, people are frozen. They are sitting on the sidelines and waiting. That’s not necessarily a good or bad thing. It may be the correct decision.
Professionals in the mortgage and housing industries, however, owe it to these clients to ask probing questions about their choices. It’s important to lead in this moment so your clients don’t lose out on opportunities or make hasty decisions that could hurt them, especially in the long run.
This is a time of turmoil as demonstrated by recent interest rate increases and a lack of housing supply after months of rampant home price growth. Mortgage and housing professionals need to keep their heads on straight. They need to help people stay focused on what’s truly important.
“Even though there are momentary shifts or corrections in a market, it does not mean that the larger economic forces of society are going to be greatly altered.”
If you are a leader in the mortgage industry, help your people (especially at a time like this) to become outwardly focused by providing energy and service that supports client needs. Leaders can show that it isn’t difficult. Many times, individuals just need encouragement.
There is a Japanese proverb that says, “Vision without action is a daydream; action without vision is a nightmare.” Remember that it’s not just about going out and running around randomly. It’s about having a clear intention on the things that you want to help those around you accomplish, as well as what you want to accomplish for yourself.
Reset expectations
The intention is to help your client make a great decision. Interest rates are higher right now. Affordability is lower. People who are selling houses today are still wanting to get the same prices they could get a year ago. But expectations are different. Remember, this is why real estate professionals exist, to help reframe and reset these expectations by telling the truth.
If history is any indication, the value of real estate will continue to go up. It has for the past 50 years. How many stories have you heard from people in their 50s and 60s and 70s who talk about paying $200,000 for a house and selling it for $1 million. These stories are rampant and the trend is not going to evaporate.
Even though there are momentary shifts or corrections in a market, it does not mean that the larger economic forces of society are going to be greatly altered. Think of it like the waves of the ocean — they come in, they go out. That’s the way business cycles work.
Billionaire investor Charlie Munger says that the way to truly capitalize on your investment is to make sure that you’re willing to stay in it for a long time. It needs to be thought about as a long-term decision rather than a short-term reaction. Mortgage and housing professionals are not here to help people react. They’re here to help people thoughtfully decide what’s best for them, not just immediately but also in the long term.
Market timing
If your client is investing in real estate, you need to convince them to think about it as a retirement program. It should not be an immediate cash-flow return program, because if the client does it that way, they’ll eliminate one of their sources of wealth.
Remember that homeowners create wealth in two ways. The first is by purchasing a property and paying down the liability on the asset. The second is to watch the value of the property rise over time. Both ways create equity for the homeowner.
Clients often look at buying and selling with the idea of timing the market. Yes, this does happen. But a smarter move is to buy without factoring in short-term hindrances such as rates and costs. Over the long haul, it will be better for borrowers if they jump into an industry that has proven itself over the past 50 years to have a natural flow of increased appreciation and tax benefits.
Help your client seize the opportunity for long-term wealth, which leads to financial stability, which leads to a much better life when they get older. Many people are overly dependent on things like government assistance or Social Security.
Mortgage professionals need to encourage their clients to get in the game — and stay in the game — for the right reasons. Help your clients see an opportunity to use real estate as an asset that will gain value over time.
Historical trend
In the mortgage world, some forecasters suspect that interest rates will soften in the next 12 to 18 months. Remember that when rates decrease, homebuyers have a chance to refinance their mortgage. So, between getting in on the asset and having future opportunities to reset, they can prepare for massive market swings.
They have other options as well. Imagine someone who bought a small house in the third quarter of last year for the national average price of $454,900. The payment on a 30-year fixed loan at 6.8% (assuming a 20% downpayment) would be nearly $2,750 per month. Let’s say that the buyer starts a family and wants to move to larger house. The question then becomes, does the homeowner sell the house or rent it out? In this scenario, let’s assume that rents in the area aren’t equivalent to the mortgage payment.
The homeowner can sell and use any equity they have to purchase a new home, or they hold onto the property and potentially refinance while waiting for rents to catch up with the mortgage. Their friends and family members will likely be in their ear, urging them to sell, etc. That’s especially true if there’s any need for maintenance. And there’s almost always a need for maintenance.
Holding onto the property will likely benefit the client in the long run. The lesson is, if you can hang on and stay in the game, the real estate asset will take care of itself. It’s already been proven over the past half century.
So, keep your head on straight and better yet, keep your clients’ heads on straight. Understand that shifts in the market happen, but they go in cycles. If you stay in the game long enough, that’s how you’ll achieve your greatest wealth opportunity. ●
