The Impact of Every 50bps on AI adoption
Can the Fed's rate cuts directly impact how real estate agents are using AI?
I would not be exaggerating to say that the entire industry has been watching interest rate movements over the past 2 years with the enthusiasm normally found at a Vegas sportsbook. The impact that a changing rate environment has had on the collective psyche of buyers, sellers, agents, brokerage owners, and regulators has come to define much of today’s discourse around the state of the market. The Federal Reserve’s recent 50bp interest rate cut caused markets to rally and many to cheer. Even in the past week, agents are beginning to see less of the “lock-in” effect (where an existing owner with a low-rate is discouraged to sell because of their relative buying power of a new house with a higher-rate) that slowed down the pace of transactions since mid-2022.
The actual effects of the rate drop will play out over the coming quarters. While good news for those focused on stifling the threat of inflation, it is unlikely that lower rates will address home affordability, though it will likely open up much more inventory to the market.
In the midst of these market forces are agents, who everyday are being asked similar questions from all of their clients. The requests they’re getting? Clients want help timing the market and making sure that they can get what they want for the price they want, when it’s available. It’s more than a fear of missing out; it’s fear of missing.
So how can AI help with the hit rate? As the 30-year continues to ease, and as the general consumer adoption of AI continues to grow, there are tremendous opportunities for real estate agents to leverage AI Assistants to help them meet and exceed their client demands. Let’s go through a few examples.
Making sense of the market
First and foremost, agents should expect inventory to begin to move more quickly as rates continue to drop. More sellers will enter the market, since they are now able to get better purchasing power for their next property; buyers who have been on the sidelines now have a better chance of securing the property they want with financing that is within the realm of possibility. As a result, agents will get more and more questions about the state of the market. And not just lagging indicators, such as how many homes sold last month - but leading indicators, like how many showings certain properties are getting.
It will be essential, given how publicly available listings data is on search portals like Realtor.com and Zillow, that agents have the ability to pull insightful statistics quickly and accurately. With Sidekick, we’re solving this problem with the Sidekick Query Engine (SQE) which allows agents to simply type sentences to abstract data out of the MLS with unparalleled ease. Instead of clicking through a series of dropdowns and filters, an agent could simply ask “How many SFH have hit the market in Pasadena in the past 6 days with at least 3 bedrooms but under $2m, and how does that compare to the last 2 months?” What would normally take 20-30 minutes to search, aggregate, and analyze by an agent can now be condensed to 10-15 seconds with AI at your side.
Tackling the affordability question
“Should I buy now or wait a year for rates to drop even lower?”
I’m sure many active agents have received some form of this question from their clients over the past couple of years. How this question gets answered has varied greatly (ranging from “the best time to buy is yesterday” to “no” to “it’s really up to you”). How can AI help facilitate a better dialogue with a client on the fence?
Let’s assume a scenario where a San Francisco based buyer has a budget of $2 million. Showing them the total payments over the first 12 months at both today’s rate for a 30-year jumbo (~6.1%) vs. at 5% (the forecasted rate a year from now, for example), will demonstrate that in aggregate the difference in payments over the first year (before a refinancing could occur) is about $14,000. $14,000 on a $2 million home. Equipped with this analysis, an intelligent series of conversations can now take place with your client:
Let’s see if we can knock $14k off the purchase price (0.7% discount) or figure out some concessions.
Your home equity will likely accrue by more than $14k in a year, not to mention the tax benefits of ownership.
This home won’t be available in a year; is it really worth $14k to risk that option?
For a newer agent who may not be familiar with how to build a comparative amortization and interest waterfall in Excel, this type of AI support really helps that agent punch above their weight. And for a seasoned agent, who understands the type of analysis that their client needs to see to get them over the line, AI at this point is truly acting as an assistant that can go and do the work.
The above are just a couple of examples of how AI will become more essential to the way agents work as the market continues to open up. Which means - it’s time to get ahead of the curve now.
Thanks for reading this week’s edition of the Sidekick newsletter, and please share this with any colleagues or friends who might find it interesting!
Michael Martin
Co-Founder/Co-CEO
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