After two years of a red-hot market, it’s time real estate and mortgage professionals get ready for what could be a slowdown in their business.
Earlier this summer housing prices were on fire. Now there is talk of a “housing recession.” Due in part to higher mortgage rates and more people vacationing this summer, U.S. existing home sales fell in July for the sixth straight month, the longest streak of declines in more than eight years.
One of my clients in the Midwest put his home up for sale recently and has had no interested buyers – none. A few months ago, we were certain it would sell in days. The plan was to sell the house and pay off their construction loan on their new home before it converted to a permanent mortgage. Now, that plan may need to change.
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Several mortgage companies have already let go thousands of employees, and one company, Sprout Mortgage, based in East Meadow, N.Y., shut down in early July. Real estate brokerage companies, such as Compass and Redfin, have also slashed their workforce.
Real estate is cyclical, and while sales will not totally dry up, anyone tied to the industry should get their finances in order now in case the current downturn lasts another several months.
Here are a few moves to consider:
Build an Emergency Fund Twice as Big as a Salaried Worker’s
No one wants to get caught borrowing money to pay their bills. While putting away enough money in a savings or money market account to cover six months of expenses is normal, it’s best to plan for a longer period if you work in a cyclical industry.
Consider keeping six to 12 months of reserves available to cover your expenses, which is roughly double the amount recommended for salaried jobs.
Keep Your Lifestyle in Check
When the market was booming, you may have started spending more money than usual – dining out often, buying new technology for the home and taking more vacations. Many households can save hundreds of dollars each month by reducing or cutting these kinds of expenses.
Review your spending over the past year and determine how you can save money that may be needed to help conserve cash.
Delay Any Large Discretionary Purchases
If you’ve been saving for a new car or other large discretionary purchases, consider putting them on hold. This money may be needed to pay for essential living expenses. Look to maintain your current vehicle for another six to 12 months rather than risk taking on new debt with fixed monthly payments.
Pay Off Any Committed Large Expenses Now
Review your upcoming expenses you’re committed to and determine if any items can be paid for now with surplus cashflow. For example, if you’ve signed a contract for home renovations to start in a few months, pay as much of the anticipated expenses now, ahead of time, or know the funds are set aside. When your home project finally starts, you may need those renovation funds for essential expenses.
Continue Marketing Your Business
Home sales may be falling off, but many people will still want to sell their home during the coming year and buy a new one. How can you ensure you are top of mind when sellers need to sell, or buyers need to buy?
Review your list of top sources for referrals and connect with them now. Don’t wait until it’s crunch time to undertake business-development activities. Stay active on Facebook, LinkedIn and other social media channels to ensure potential sellers see that you are continuing to generate sales. Try to tell someone new every day what you do for a living!
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