September 5, 2011
One of the many harsh realities we’ve grown accustomed to during this economic downturn is the turbulent nature of stock market indices, especially the Dow Jones Industrial Average. Since the beginning of 2008, the DJIA has experienced historic or near-historic daily drops on 14 occasions — each time sending both Wall Street and Main Street into panic mode.
It was in the wake of the latest downswing (in early August following S&P’s downgrade of the nation’s credit rating) that I had a long conversation with Meritage Homes CEO Steven Hilton for our Executive Corner column (page 66). Hilton said he expects good things for his company during the second half of 2011, “although the last few weeks have been quite scary. I think consumer psychology has taken a pretty good whack here from the stock market, and it’s cause for concern.”
Large drops on Wall Street no doubt have an adverse effect on new-home sales. Hilton said there is a direct correlation between market swings and sales metrics like cancellations and buyer urgency. Fortunately, there are proven tactics for combating the negative effects.
For specific advice, I reached out to two notable new-home sales experts and Professional Builder contributors: John Rymer, principal of Rymer Stategies, and Bob Schultz, CEO of The New Home Sales Specialists. They offer the following tips:
- Don’t panic during turbulent swings. Just as notable financial experts caution personal investors not to panic when the market plummets, new-home sales managers must calm their sales team during violent swings, says Schultz. “Traffic being down for a week or two, although not good, is not fatal. It is cyclical, and just as the market usually rebounds to some level of acceptance, so does traffic.”
- Remind buyers that real estate is a much safer investment than the stock market. In the last 58 years that housing records have been kept, says Rymer, the DJIA finished lower in about a third of those years (17 years), while national home prices declined in only six of those years.
- Nip potential cancellations in the bud. Schultz says a good salesperson can talk buyers off the ledge by engaging in conversation about the reality of the situation. That is: The stock market has dropped numerous times in the past, and it has always recovered to an acceptable level. “Offering to modify the purchase agreement to a contingency for a week or two while the market settles back to a mutually agreed upon level of acceptability could be an appropriate strategy,” says Schultz. “This puts on hold the immediate emotional pressure the buyer is experiencing.”
- Emphasize the long-term advantages of a new home rather than trying to “time” a home purchase. “You want them to buy based on their long-term belief in homeownership, not simply for speculation,” says Rymer. “Ask them, ‘Is this the house that meets your needs? Does it represent a good value? If so, let’s go forward.’”