Ask Me Anything - Rick Sharga and Brett Jennings: This Time, It’s Different

This week, Rick Sharga, nationally renowned real estate, mortgage, foreclosure expert, and former CMO of Ten-X, joined Brett Jennings, the data-driven Founder of Real Estate Experts, to discuss COVID-19’s impact on the housing market. Together, these industry experts explained why this pandemic is distinctly different from prior global pandemics and recessions. They also gave actionable advice on how top agents can best position themselves for success as we navigate this challenging time together.

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Key Takeaways

1.  THIS IS NOT A HOUSING CRISIS. History suggests we should be hopeful about housing recovery post COVID-19 for three reasons:

1. Housing has fared better than the overall economy during prior pandemics and recessions. 

2. Preliminary data shows that homeowner impact (late mortgage payments, mortgage forbearance requests, etc.) hasn’t been as bad as predicted.

3. The housing market was very, very healthy prior to COVID-19. Our current setup paints a far rosier picture for recovery as we navigate COVID-19 (and brace for impact) than 2008 trends did.

Sharga says, “In 2008, the market was egregiously overbuilt. The market is significantly underbuilt today - by as many as 300 to 400,000 units a year. In 2008, home prices were overvalued, and [were] really papered over by lax lending standards, but they're reasonably valued today. Coming into this pandemic, homeowners had a record level of equity, which is a big, big shift from where we were in the Great Recession.”

2.  WHAT TO EXPECT: Best-case scenario, we bounce back in 3-6 months; worst-case scenario, we see waves for 18 months, then things gradually get better.

● Jennings says, “SARS did significantly impact Hong Kong. It took them about six months for their market to regain full velocity. Hopefully, by the time shelter-in-place is lifted, we'll be back and running within three to six months.”

● Sharga cautions, “We could be looking at waves rather than a V-shape recovery because we're not sure if we're going to have another series of infections after the shelter-in-place orders are lifted. [We also don’t know] how soon vaccines or medical treatments might be available to prevent or handle this outbreak. I expect April home sales numbers to be awful nationally. I don't expect May numbers to be much better because May sales would entail people out looking and making contracts in April. I really don't think we start to get back to a semblance of ‘normal’ until June at the earliest.”

3. UNEMPLOYMENT AND FORECLOSURES: Despite record-high unemployment numbers, we’re not seeing a huge jump in foreclosures; numbers are healthy so far, and forbearance requests are lower than anticipated.

● What’s the relationship between unemployment numbers and foreclosures?
Sharga says, “Historically, there are two things that you can count on with unemployment rates. There's an inflection point between 5-6% unemployment [where] you see a significant change in sales transactions. If you're going from below 5% to above 5%, you see sales transactions dip. If you're going from above 6% to below 6%, you see sales transactions pick up. Similarly, when you see unemployment rates go up, you typically see foreclosures go up.

The last [2008] cycle is an aberration. We had unemployment caused by the housing market meltdown, which drove the foreclosures through the stratosphere. I mentioned earlier that in a normal market you have 1% foreclosures and 4% delinquencies. At the peak of the last market, we had about 12% delinquency and about 4% foreclosures, so the numbers were off the charts.”

● How does 2008 compare to what’s happening now and what can we expect? 
Sharga says, “All of the people that filed for unemployment so far - the 3 million, and then the 6 million after that - represent about 10% of the workforce. The real question is how long they remain unemployed. That's what will ultimately drive the foreclosure rate. 

It's hard to predict right now because, in prior situations, job losses were permanent, so it was sort of inevitable that the borrower would stop making payments [at some point] and the foreclosure process would begin. There's usually a three to six month lag time. In this case, it could be a year's lag time before we know if the borrower is going to be able to start making payments again.”

● What options do homeowners have?
Homeowners with loans through government-backed lenders can request to have mortgage payments deferred, with some programs for up to a year. Surprisingly, Sharga says, “According to the Mortgage Bankers Association, only about 2.7% of mortgage holders applied for these forbearances by the end of last week. The number's up a little bit over 3% as of today - but the fear had [been] that these numbers would get up as high as 25%, which would have essentially bankrupted the mortgage servicing industry and caused a lot of chaos in the channel.”

● What does foreclosure data show us?
Sharga says, “Historically, about 1% of loans are in foreclosure at any point in time, and about 4% of loans are delinquent but not in foreclosure. Immediately prior to this pandemic, we were looking at about 3.5-3.7% of loans being delinquent and about a half a percent of loans being in foreclosure. So moving into this trying time, the market has never been healthier from a foreclosure standpoint.”

4. WHAT YOU NEED TO DO TODAY: Get your finances in order. It’s crucial to have a runway of working capital in order to ride out any storm. Also, double down on lead gen that works—increase prospecting, focus on training, and over-communicate with clients.

Brett’s 5-step action plan for top agents

1. Get your finances in order
Know your real expenses (business and personal) know the ROI on your marketing spend leverage or create a budget set a goal to have 3 months of core capital on hand, and cut unnecessary expenses.

2. Double down on your best lead generation efforts and focus on your most motivated buyers and sellers 
Identify what lead gen efforts are working by listing all your closings for the last 24 months; identify your best  2-3 lead sources and double down on them. Also, watch web traffic to identify motivated buyers and personally reach out to them. Be sure to always connect with potential sellers who are experiencing one or more of the 4 D’s: divorce, distress (default notices), downsizing, or death. If you haven’t done so recently, now is a great time to expand your network to include some divorce attorneys!  

3. Triple your lead conversion efforts
Identify what lead gen efforts are working by listing all your closings for the last 24 months; identify your best  2-3 lead sources and double down on them. Also, watch web traffic to identify motivated buyers and personally reach out to them. Be sure to always connect with potential sellers who are experiencing one or more of the 4 D’s: divorce, distress (default notices), downsizing, or death. If you haven’t done so recently, now is a great time to expand your network to include some divorce attorneys!

4. Increase your training efforts
Sharpen the saw with your team. Master dialogues that create urgency, practice virtual buyer and seller presentations, role play regularly, and memorize local market trends and stats inside and out. 

5. Be very visible and over-communicate with clients.
Stay in constant contact with your active buyers and sellers, share what you’re doing, provide metrics and data points, connect weekly. Focus on identifying their ‘why’ and sharing positive market news with buyers. 

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