I’m seeing a lot of fear and a lot of potential pain in the marketplace right now. And I think it’s because everybody has been caught blindsided. What I mean by that is there is a problem. And the problem is that we’ve come from a market that was very unnatural the last year or two, to a market that is less predictable than maybe any market we’ve seen in decades. So during this video and blog post, I want to give you solutions on how you can actually prepare your business right now for whatever the future’s going to hold.
I have a document in front of me that was printed 18 minutes ago. And the heading of the document says, “After a huge year for growth, the US economy is about to slam into a wall.” Now, I don’t know how long any of you reading this have been in business, but I can tell you that whenever the economy slams into a wall, there’s either opportunity or there is crisis. Part of that depends on your mindset. The other part of it depends on how prepared you are. I believe that the cycle we’ve come through is a cycle that has been one of the greatest gifts that we could ever receive as real estate and lending professionals. But I can also tell you that with every gift, with every blessing, there’s a curse. And with every curse, there’s a blessing, to quote Garth Brooks.
So as I think about this article, and as I think about some of the things that are really important, I’m going to set the stage by adding some layers to the pain that is forecasted. And it may or may not come in as heavy and as tough as it may sound right now, or it may come in tougher and heavier than it sounds right now, but just track me on this.
The First Quarter of 2022 May Show a Loss in GDP
The first key point from this article, in the first quarter, so that’s right now, the economy may not show any gain at all, and possibly show a loss in GDP. So that’s an interesting start to this. Couple more things, combine that with a federal reserve that is pivoted from the easiest policy in history, and the picture has suddenly changed substantially. The Atlanta Fed is forecasting that the current tracking for the first quarter GDP is 0.1. That is super, super, super low. The economy is decelerating. It’s downshifting. Chief economist of America’s Natixis, and this guy was a former chief economist for the national economic council. It’s not a recession, but it will be if the Fed gets too aggressive. So that’s an interesting thought. And all I’m trying to do is just have you be thinking right now, how prepared you are.
Look to Financial Institutions for Economy Growth Projections
There’s a title heading. It says, “Economists playing catch-up.” Wall Street economists have been marking down their growth projections very quickly. Goldman Sachs slashed its first quarter GDP outlook to only 0.5% down from 2%. The bank also cut its full year view to 3.2%, well below the current consensus. And then we go to just a national bank. I think it’s always interesting to take a look at what financial institutions are suggesting. Likewise, Bank of America knocked down its first quarter number to 1% from 4%, and cut its full year forecast to 3.6% from 4%. So not a big reduction, but a reduction nonetheless. And then it says with risk to forecast that this economy is seemingly tilting to the downside. Again, every blessing has a curse. Every curse has a blessing.
And then finally, I thought this was interesting. Bank of America has another wrinkle in its forecast, a call for seven 25 basis point rate hikes this year. That’s considerably more aggressive than anywhere else on the Street, Wall Street, which is currently pricing a minimum of five hikes with about a 31% chance of a sixth hike.
Mortgage Rates Will Go Up, Seller Prices will Subside
So I give this to you because it’s going to cause a lot of pain if you’re not ready for the changing market. Right now, we’re still feeling, in America, that many markets still have an inventory problem, which is not giving us the reality of what maybe the next two or three months might look like. We still have, in many cities, multiple offers, and we’re seeing that happen. And I saw it as recently as yesterday in Southern California. But I think, at the end of the day, one thing we know for certain is that all good things come to an end. And that is in the form in the mortgage industry of rates going up. And it’s also going to be in the form for the real estate market of seller prices subsiding, and obviously, a wrinkle in buyer capability and capacity to borrow.
How to Prepare for the Recession to Come
So all I’m saying is that there’s a lot of unknowns. And the solution for any unknown is to be prepared. So let me tell you a story. When I got into the loan business, interest rates were super, super high. Prime was at 20%, 21%. Government loans, 17%, 17.5%. Five, six points, it was hairy. First and second piggybacks, 18.5%, 19%. I’ve told this story many, many times, but unemployment was high. We were in a recession. We, in America right now, might be going into a recession. And that’s just the truth. I’m not trying to scare anybody. I’m just saying, when we’re in a recession, buying policy changes, prices change, capacity changes, production changes, and sadly, attitude changes.
And so when I was facing unemployment at a very, very high level, when I was a loan originator, and when I saw everything from the consumer confidence index to the performance price index, that signaled that the cost of services are going up. Even last night, looking at the average of gasoline in America, going up $1 across the entire country in just a period of three, four months. We’re seeing oil knock on the door of $100 a barrel. That’s going to cause a lot of change in our buying behavior. So what is the solution for this? The solution is to be prepared.
When the Markets Get Tough, People Become Fearful
And so when I was going through this market, my mentor gave me an attitude mindset that would change everything he said, when markets get tough, people become fearful. And I’m not disrespecting fear as an emotion, but I am suggesting that fear for one person can be excitement for another. And again, not minimizing anything that has happened to anyone as the cost of living has skyrocketed. But here’s what I know. I know that people still buy, I know that people still sell, and I know that markets still go forward in whatever the economy is. And I think that as blessed as we have been in the last 24 months with a low interest rate environment, we’re going to be back up probably knocking on the door 5%, 5.5% anytime in the next, maybe 30 to 90 days. That’s two and a half points above where we were in 2020.
How to be on Your Game During Rate Hikes
And rates began to come up, obviously, at the end of the year, last year, and they’re continuing to come up today. And if there’s going to be seven rate hikes, then you have an opportunity to have your game on to be ready to go. So here’s three steps that I want you to take immediately that will help you accomplish whatever you want, no matter what the market is saying.
First of all, change your mindset.
Be a Source of Positivity
I had a button made up when I was a loan originator, and it’s a big green button. And it says on that button, “Rumor is we’re in a recession. I’m not participating.” I think you need to be a purveyor of hope. I think you need to be a lighthouse if you’re lending to your agents and your consumers, if you’re a real estate agent to your buyers and sellers. Be an illuminating life force for them and have your clients stay positive, even in the midst of challenges. We know that no matter what happens, our attitude paves the way for whatever we do. When I have that button on, people would look at me like going, “Are you crazy?” And I would say, “No, I’m not crazy. I’m just choosing a positive attitude in a time where everybody thinks the sky is falling.”
Now, am I a dreamer? Yeah. Am I a realist? Yeah. I mean, rates at 18% are very high. But I can tell you right now, rates at 5%, 5.5% are only high compared to where we’ve been in the last two or three years. I did business my entire career with interest rates almost always every year, except the last one above 10. So mind your mindset. Mind your mindset. That’s number one.
Develop Deeper Partnerships with Your Consumers
Number two, develop deeper partnerships with your consumers. One of the things that I want you to really take a look at, if I’m in the lending business and I’m in wholesale, who are my brokers? If I’m in the lending business and I’m in retail, who are my agents? Obviously, we both have borrowers. If I’m a real estate agent, look at my sellers, look at my buyers. And what am I actually trying to accomplish? And if you deepen those relationships right now, one of the messages is everybody’s saying the sky’s falling. So you know what the good news is about that? Less competition. So if there’s less competition and you have a better value proposition, which is still part of number two deep in your relationships, you can win at any market.
Nurture Your Network Right Now
And the third thing is nurture your network right now. Every single person that you have a conversation with in today’s market, while they may or may not be a qualified prospect now, they will be a qualified prospect at some point in the future. We had a lot of opportunities when I was a lender back in those days of high interest rates. And we had what was called the home loan action plan.
If I’m a real estate agent or a lender right now, and I have a buyer that’s going to get priced out right now because of either high listing prices still, multiple offers still, and or rates going up still, that doesn’t mean they’re not going to be buy a buyer in a year, or two, or three. So manage your mindset, deepen your relationships, nurture your network. Stay in touch with anybody that gets priced out in a funky economy because we know that all good things come to an end, and we know that all bad things come to an end. You have to be positioned right when that occurs.
Additional Resources
If you need any help from us, check out some of the resources that are available for you in today’s marketplace, free and no charge whatsoever. We’re here to help you. We’re here to serve you. And again, I am not an economist, and I am not a licensed security or financial advisor, but I am a street fighter. And those are my thoughts today on a market that is going to be tough.
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