Forecasters Remain Cautious Given Inflation, Interest Rate Uncertainty
The real estate market has cooled over the past quarter, as buyers face mounting economic pressure from inflation, bloated housing prices, and escalating interest rates. But the question in most forecasters’ minds is what will happen in 2023 with inflation and interest rate projections in – as yet – unknowable territory.
Although experts are all over the map when it comes to predicting interest rates – projections for 2023 are currently ranging from 5% to 9% – everyone agrees that it largely depends on the Consumer Price Index and the Federal Reserve’s interest rate decisions that result from that data.
Economic predictions are often based on “the way it happened in the past,” but economic fundamentals are rarely exactly the same mix as in the past. Such is the case today, where economic fundamentals are largely stable and housing inventory remains tight – a promising recipe for a decent, albeit softer, purchase market in 2023.
Rodney Anderson, Executive Vice President, National Agency Manager with Alliant National, noted on a recent October Research webinar that while we are currently experiencing a slowdown in the market, it’s difficult to say what portion of that is seasonal and how much is interest rate-related.
“We’ve had a sellers’ market for a long time, and now, we are returning to equilibrium,” he said. “But if you look at the number of houses on the market, we are still in a sellers’ market, with a lot of regions experiencing only a 3-months’ supply, so there is continued support for prices to remain fairly stable.”
Although there remain a lot of unknowns, many economic forecasters retain a sense of cautious optimism based on what we do know, while lenders and real estate professionals are facing the reality of lower sales and originations in 2023.
Key Factors: CPI and FOMC
The Federal Reserve’s battle against inflation remains one of the key factors in the overall economic outlook for next year, as well as the outlook for the real estate markets, since with each incremental rise in the interest rates, a new segment of buyers will be priced out of the market.
The Federal Reserve has maintained a hard line with regard to inflation, and Federal Reserve Chairman Jerome Powell did not soften his tone during his Dec. 14 presentation following the December meeting of the FOMC, where he announced the Fed would be raising the interest rate another half percent.
“Price stability is the responsibility of the Federal Reserve and serves as the bedrock of our economy,” Powell said at the outset of his speech. “Without price stability, the economy does not work for anyone and without price stability we will not achieve a sustained period of strong labor market conditions that benefit all.”
In addition, Powell said he anticipated that “ongoing increases would be appropriate in order to attain a stance of market stability that is sufficiently restrictive to return inflation to 2% over time.”
One positive indicator in December was the Consumer Price Index, which showed inflation had slowed to 7.1%. While that stat was encouraging, Powell said it was not enough to deter further interest rate hikes.
“It will take substantially more evidence to provide confidence that inflation is on a sustained downward path,” he said.
With the target federal funds rate range now at 4.25-4.5% and Powell suggesting further hikes, it is now anticipated that the federal funds rate could rise to 5.5% in 2023, adding some further deterioration to the pool of potential buyers.
Federal Reserve reports stable economic activity
The Federal Reserve’s Nov. 30 release reported economic activity was flat or up slightly across most of the districts, a sign that the economy continues to hold its own despite the known headwinds of inflation, high interest rates and global issues.
Reports across sectors were uneven. Not surprisingly, lending, home sales, apartment leasing and construction all exhibited slowing trends while improving inventory in the auto industry has resulted in an increase in sales in some districts. In addition, spending was up in travel and tourism, and as well as in restaurants and hospitality. Manufacturing was also up slightly on average.
Employment numbers remain steady
Total nonfarm payroll employment increased by 263,000 in November, and the unemployment rate was unchanged at 3.7%, according to the Dec. 2 release from the U.S. Bureau of Labor Statistics. Notable job gains occurred in leisure and hospitality, health care, and government. Employment declined in retail trade and in transportation and warehousing.
Consumer confidence concerns were largely allayed by record Black Friday and Cyber Monday spending. Although inflation has taken its toll on consumers, low unemployment has kept spending steady across many sectors, including mortgage and rent payments, a factor that is keeping foreclosures contained.
Employment is also a major factor in keeping foreclosures down, and while labor demand is weakening, according to the Federal Reserve, businesses are expressing a reluctance to lay off due to hiring difficulties. Most importantly, most districts reported a fairly positive outlook, pointing to stable or slowing employment growth and at least modest further wage growth moving forward.
Real estate and lending projections
While the economy overall appears to be stable, the real estate market continues to decelerate.
According to the National Association Realtors (NAR) Nov. 30 report, pending home sales slid for the fifth consecutive month in October, falling 4.6%. Three of four U.S. regions recorded month-over-month decreases, and all four regions recorded year-over-year declines in transactions.
While there are always seasonal declines in the fall, the year-over-year number was more dramatic, with pending transactions down 37%.
“October was a difficult month for home buyers as they faced 20-year-high mortgage rates,” said NAR Chief Economist Lawrence Yun. “The West region, in particular, suffered from the combination of high interest rates and expensive home prices. Only the Midwest squeaked out a gain.”
On the upside, Yun was hopeful that the upcoming months will see buyers returning to the market if mortgage rates moderate, as they have in the past few weeks.
Taking a hard look at the numbers, Freddie Mac, in its most recent analysis, noted that home sales have fallen to a forecasted 5.4 million units at a seasonally adjusted annual rate in the third quarter of 2022 from 7 million earlier this year. The GSE forecasts that home sales activity will bottom at around 5 million units at the end of 2023.
“We expect house prices to decline modestly, but the downside risks are elevated,” Freddie Mac noted. “As the labor market cools off, housing demand will remain weak in 2023, potentially resulting in declines in prices next year. However, home price forecast uncertainty is wide due to interest rate volatility and the potential of a recession on the horizon.”
Freddie Mac predictions include:
Overall originations are expected to hit $2.6 trillion in 2022 and slow to $1.9 trillion in 2023
Mortgage originations will end the year at $1.9 trillion and slow to $1.6 trillion
Refinance originations slowed to $747 billion and will deteriorate to $310 billion in 2023
The Wild Card: Consumer confidence
Data can certainly tell us a lot, but at the end of the day, consumer experience and assessments can impact the long-range reality, and consumer confidence is decreasing, according to the Conference Board Consumer Confidence Index.
While not dramatic, the index backtracked to 100.2 from 102.2 in October. In addition, consumers assessment of the current conditions decreased to 137.4 from 138.7 last month, and consumers’ short-term outlook declined to 75.4 from 77.9.
Consumer confidence can keep the economy and the real estate market moving forward, while hubris can take us into unsustainable territory, as we learned in 2008. A little reality check may not be a bad thing as we all continue to keep tabs on the data and plan for a softer market in 2023.
With 2023 right around the corner, it’s time to get your marketing ducks in a row
The proverb, “Time waits for no one,” is highly applicable to the annual year-end sprint for businesses. Not only do companies need to close out the year on a high note, but they must also get a jump on next year’s strategic marketing plan. In this blog, we’ll examine how you can start putting a framework together to develop your plan and move your business forward.
A Quick Primer
Putting together a strategic marketing plan can seem overwhelming, but it is not that difficult. That’s because a strategic marketing plan can largely adhere to a simple format, which is:
Now, each element of your plan needs to build organically off one another. For instance, once you have your annual goals in place, the strategies you decide on need to naturally lead to achieving each goal. A similar process will occur for your marketing tactics: Think of them as a step-by-step process for bringing each strategy to fruition.
Also, remember the benefits of making your SMART. Last year, we wrote a blog on what that means, which you can read here. Let’s get a summary:
Specific: Don’t simply say something like: “I want to increase my customer-base.” Instead, consider the specific number and types of new customers you would like to obtain.
Measurable: Attach metrics to your goals. This involves benchmarking where your company currently is so you can assess whether your marketing has moved the needle.
Achievable: It’s important to “dream big,” but your final marketing plan should include goals you can reasonably hit.
Relevant:Spend time ensuring your goals are relevant to your organization’s priorities. Be honest with yourself. Will that exciting new marketing project or initiative really help you achieve your business goals? If not, perhaps it’s worth thinking about other ways to allocate your time and resources.
Time-sensitive: Goals are great, but they also need a clear timetable. Without a timeframe, core aspects of your marketing plan will begin to break down.
Leverage Top Trends
For small businesses, there are plenty of new developments in the marketing world to consider implementing in your 2023 plan that can help you achieve better customer relationships and higher profitability. Here are just a few trends we’re seeing:
Video Content is King: According to research, more than 50 percent of viewers prefer to consume online content in a video format.[i]
Partnerships: Forming strategic partnerships can help you reach new markets and gain higher levels of engagement. Of course, remember to keep it compliant.
Interactive Content: As part of your content marketing efforts in 2023, you may want to experiment with interactive material in the form of polls, quizzes, calculators, assessments and more.
Conversational Marketing: Chat bots, artificial intelligence and machine learning can be lumped under the umbrella term of “conversational marketing.” They offer clear advantages over traditional methods by supporting two-way conversations. If you’d like to get a basic introduction to chat bots, check out our full blog on the subject.
Corporate Social Responsibility: The way a business conducts itself socially is increasingly a top concern for customers. How big is this trend?
87 percent of consumers will purchase a product because a company advocated for an issue they care about.
92 percent of consumers say they have a more positive image of a company when it supports social or environmental issues.
66 percent of consumers are willing to pay extra for products and services that come from companies committed to positive social and environmental impact.[ii]
These figures paint a clear portrait and present an obvious takeaway: Being community responsive and socially responsible pays off in real dollars and cents.
Don’t Leave it to Chance
Your business is too important to leave something like how you promote it to chance. This makes your strategic marketing plan about as important as it gets. While strategic marketing can get complicated quickly, having even a strong framework in place, one marked by SMART goals and aligned with your overall business priorities, can go a long way. Pairing this with the field’s top and emerging trends can optimize your efforts further, positioning you to obtain strong customer connections and lasting profitability in the new year.
Want a deeper dive into creating a strategic marketing plan for 2023. Check out this helpful article.
For many people, automation can feel a tad unnerving, evoking dystopian fears of robots replacing humans in the workplace. While there is a kernel of truth here, the reality is that workplace automation has also already been helping businesses reduce inefficiencies and net higher profits for generations – going back all the way to the Industrial Revolution. Today, automation continues to move full steam ahead, providing future-thinking business leaders like yourself with the chance to optimize your operations and gain a competitive advantage.
What do we mean when we talk about workplace automation?
Automation means different things depending on the industry. But when you boil it down to its essence, all automation is really referring to is technology that reduces or eliminates the need for human involvement in a series of tasks.
Automation plays an important role in our sector, with new and emerging technologies like machine learning (ML), artificial intelligence (AI), Big Data and more helping complete tasks with greater speed and dexterity. And when you add in an increasingly stringent regulatory environment, it is easy to see why title insurance professionals are turning to automation to push back against competitors, navigate cumbersome regulations and unlock value.
Of course, for independent agencies, gaining the benefits of advanced technologies can be challenging. But even when dealing with finite time and money, there are solutions agencies of any size can implement to ratchet up their profitability and create better processes.
Customer relationship management (CRM): CRMs are essential for any agency looking to build out their tech stack. Not only do CRMs make it easier to generate sales leads but they also help agents manage their roster of existing policyholders. Learn more about CRMs on our blog.
Meeting scheduling: Modern business is full of meetings. Make it easier by deploying a free, automated tool like Calendly to streamline scheduling and avoid the annoying back-and-forth that can occur when trying to pin down a meeting date. Review some of 2022’s top scheduling applications and tools.
Invoice management: We have previously discussed automating your invoice management processes on this blog, and we will reiterate here how important this is. Whether tracking invoice delivery and payment status or reducing missed payments and simplifying accounting processes, this is an excellent automation tool to have in your toolbox.
Work Smarter, Not Harder
Automation can be an intimidating and even unsettling topic, but at the end of the day, we are all trying to work smarter, not harder. Automation has played an important part in that process for millennia now, harkening back to innovations like Johann Gutenberg’s printing press and Eli Whitney’s cotton gin. In our industry, automation can make a complex enterprise easier. From better customer management and easier file sharing and collaboration, the benefits speak for themselves.
An abnormally hot real estate market fed by low interest rates and the unexpected burst of buying during the COVID-inspired escape from the city may be finally cooling down in response to rising interest rates, inflation and a skittish Wall Street.
While real estate is taking a direct hit from rising interest rates, inflation is also reducing potential homebuyers’ buying power, especially in the low to mid-range properties. But there are a few upsides that could help us weather the storm.
The team at Alliant National has compiled information on the data points that will most impact the real estate market in Q4.
Inflation and Supply Chain
Two of the biggest challenges in 2022 are likely to persist through the end of the year and into 2023, inflation and supply chain disruptions. Additionally, the war in Ukraine has resulted in Russian energy supplies being cut off to Europe and economic pressures triggering inflation, the rise in interest rates, and potential recessionary trends are creating a confluence of uncertainty.
Concerning current economic trends, the September edition of the Federal Reserve’s Beige Book, indicated that economic activity was unchanged, since their July report, with five Districts reporting slight to modest growth in activity and five others reporting slight to modest softening. However, the report also noted that the outlook for future economic growth remained generally weak, with districts noting expectations for further softening of demand over the next six to 12 months.
Market Fundamentals Remain Steady
Despite deteriorating conditions for some home buyers, steady employment numbers should keep real estate moving through the end of 2022. Although the number of buyers competing for each property has decreased in the last few months, homes are still turning over relatively quickly and, in most regions, are sold at the asking price or more.
Continued tight inventory is expected to keep most markets competitive through the final quarter.
While there is no doubt that the real estate market is likely to continue to slow, especially if the Federal Reserve follows through on yet another rate hike, economists remain watchful of other indicators that could bode well for softening the impact.
According to Fannie Mae’s most recent release, GDP is projected to grow 1.3% in the third quarter of this year, followed by 0.7% growth in the fourth quarter.
However, most economists agree that consumers have been far more unpredictable in recent years and better than predicted GDP growth in Q4 could mitigate some of the other headwinds.
Home equity, another positive indicator for the housing market, has increased dramatically over the past decade. The value of homeowner equity in the United States increased from approximately $8.77 trillion in 2010 to approximately $21.1 trillion in 2020, according to TransUnion. CoreLogic reported recently that homeowners gained another $3.6 trillion from 2021 to 2022 as home values continued to escalate, providing some solid financial strength to help homeowners weather a potential downturn.
First-Time Homebuyer Numbers Dropping
During an October Research webinar in September, Selma Hepp, Executive, Research & Insights Interim Lead of the Office of the Chief Economist for CoreLogic noted that the real estate market is experiencing its biggest hit from first-time homebuyers, who are increasingly squeezed out of the market by the trifecta of higher prices, higher interest rates and inflation that is pricing them out of the market.
In spite of that reality, first-time homebuyers, though making up a smaller percentage of homebuyers in recent months, did bump up their participation in August.
Part of that continued interest could be that many buyers are still finding buying more appealing than renting in markets where rents have escalated faster than monthly mortgage payments in recent years. That reality combined with increasing wages in some sectors is helping offset the trifecta.
Strong Employment Outlook Encouraging
U.S. employment numbers have remained strong through the summer, with the economy adding 293,000 jobs In June, 526,000 in July, 315,000 in August, and 263,000 in September, in spite of recession concerns that predicted otherwise. There are 2.0 job openings for every unemployed person, so the demand for labor is strong and should remain so through Q4, though job openings appeared to be on the decline in October.
In mid-September, the Q4 ManpowerGroup Employment Outlook Survey (NYSE: MAN) indicated that the global labor market was likely to remain strong with steady hiring expected to continue through the remainder of 2022.
ManpowerGroup Chairman and CEO Jonas Prising reported the need for technology talent along with the growth of employment opportunities in finance, banking, and insurance are keeping the labor market strong, especially in the U.S. This along with the fact that the U.S. labor force participation grew to 62.4% in August bodes well for the real estate market as we finish out 2022.
While employment remains strong, the Conference Board Economic Forecast for the U.S. Economy, released on Sept. 14, forecasts 2023 GDP growth will slow to 0.3% year-over-year.
Anyone who has ever dabbled in marketing knows how complicated it can get. From preparing campaigns to working on branding, sometimes it feels like you need a pair of extra arms to get everything done. Yet seen from another lens, marketing is also relatively simple, as these individual activities often revolve around a singular purpose: generating leads. But as you likely already know, not every lead is a good lead. Let’s look at how to ensure that yours are qualified.
What are qualified leads?
A qualified lead is a lead that has been brought into your ecosystem and evaluated by your sales team as being worth pursuing. Qualifying leads is important for any business but especially for smaller firms with limited time and resources. By applying the right amount of scrutiny, you can decipher whether they truly intend to work with you and where they are in the buyer’s journey. Armed with this knowledge, nurturing your leads and turning them into customers becomes much easier.
Map to buyer personas
One of the first things to do when reviewing leads is to determine whether they map onto your “buyer personas.” Back in 2020, we covered what goes into building effective buyer personas. Not only must you establish your target audience’s demographics, like gender, age, geographical location and language, but you need to also think about psychological factors like motivations, goals and frustrations.
As you can probably guess, a good way to determine if your leads map onto your buyer personas is to include the right information fields on your website’s lead generation form. For instance, if your ideal buyer persona is between ages 35-50 and is a tech-centered real estate agent, you need to request that information from anyone who is filling out your form.
Remember the buyer’s journey
It is not enough to have a lead map onto a buyer persona; it also needs to be in the right stage of the “buyer’s journey.” The different psychological stages a lead moves through include:
Identifying that they have a pain point or problem (awareness),
Researching potential solutions (consideration), and
In the case of a real estate agent, eventually deciding to work with an agent whose services best fit their unique needs (decision).
Using your customer relationship management (CRM) software can help determine where your leads are in this process. For instance, if you have your email marketing software integrated with your CRM, you can easily check and see which contacts are performing which actions in relation to your marketing emails. If a lead has received your emails before but has yet to open them or interact with an element like a hyperlink, then they are likely not ready to enter into a relationship with you.
See, what’s likely happening here with these theoretical leads is that they are interested enough in your business to not unsubscribe from your mailing list, but are not actively absorbing what you are trying to communicate. Therefore, they likely do not have an acute pain point that requires an immediate solution provided by your products or services. When leads are in that state, they may be unlikely to respond to a hard sales pitch and will require further nurturing.
Lead qualification models
Once you ensure that your leads map onto the basic parameters of your buyer personas and are in the right headspace to make a move, you may want to apply additional scrutiny. You can accomplish this by deploying a lead qualification model, such as:
Each of these models have their own pros and cons, but each can also help someone working on the sales side of things to make an effective and informed decision on which leads merit pursuit.
Your ticket to better leads
Let’s face it; few things are more exciting in business or marketing than the prospect of working with a new customer. A new lead kicks off this process, which makes it tempting to spring into action and do everything in your power to convert the lead.
However, it’s smart to qualify leads before you move forward, or you risk overextending yourself and doing a lot of work that will ultimately fall flat. A steady, strategic approach, where you leverage all available sources of information, is a better way forward. It allows you to better allocate finite resources and expand your client base as a result.