Are Buyers Suffering from Housing FOMO?
The housing market in Utah has had over 14 months of low inventory and previously unseen buyer demand. Even throughout the pandemic, Utah’s majestic mountains, outdoor recreation availability, and focus on technology and business diversity has fueled high demand from home buyers coming from all over the country. This shortage of supply and high demand has created the definition of a “FOMO” market.
FOMO - short for Fear Of Missing Out is an anxiety that is felt when we have the perception that there is something better out there than what we’re doing at the moment. It is created by stress and a concern that we may be excluded from a favorable group, activity or opportunity. Now, what does that really mean? Simply put, we look at our phones, check what other people are doing on social media and think, “What am I doing with my life, all these other people are doing things that are more interesting than me - I’m going to fall behind.” It’s something that has been part of the human experience for a long time in one form or another. The ability to leverage this emotional response from buyers has never been so powerful as it is today thanks to social media, websites and instant satisfaction consumers crave on all aspects of life. Because buyers can see in real time when a home hits the market, the idea of “you only get one time to make a great first impression” is more impactful than ever. If a buyer sees a home that looks great on pictures, in an area they have been looking for, and for the right price, they start wondering who else saw it too and the race begins. To make things worse, when we look at the housing market, and try to purchase a new home or move, our options are so limited that buyers are paying more and getting less than anytime in the past. FOMO aside, should you look for your dream house now, or should you wait until the market cools off?
What Does History Teach Us?
Winston Churchill said, “Those that fail to learn from history are doomed to repeat it.”
What does this quote have to do with real estate? If you believe that home prices cannot go any lower, and you choose to purchase, then you could quickly find owing more than your home is worth. Equally, if you believe that home prices must drop lower, then you may miss out by failing to purchase while process are relatively cheap.
Instead of putting the market to chance, follow Churchill’s advice and seek the instruction of the past to gain insight to move forward. As in any asset market, the prices rise and fall, and according to Robert Shiller’s book, “Irrational Exuberance,” over the past eighty years, the average price of homes sold in the United States has risen 5.1% annually and has risen in 73 of those 80 years. In fact, 5 of the 7 years where home prices declined were during the Great Recession from 2007 through 2011. With this knowledge, history says that the average home price is going to continue to climb – so instead of listening to self-proclaimed experts on the internet, you really should evaluate your short term and long-term goals to assess the best move. If you plan to stay in your home more than 5 years, based on historical home prices, purchasing a home will most certainly net you a better return than sitting on the sidelines and watching.
Mortgage Rates Add Fuel to FOMO
According to Freddie Mac, interest rates on 30-year mortgages averaged 2.96% in August of 2021. Compare this rate to 2019 where the average rate was over 4%. How do these low rates impact you as a buyer – let’s take a look:
In this example, we will assume a home worth $400,000. With a 20% down payment of $80,000, you have a mortgage loan amount of $320,000.
Here’s how your savings might compare at today’s low mortgage rates versus forecasted rates for later this year and into 2022:
| Loan Amount | $320,000 | $320,000 |
|---|---|---|
| 30 Year Fixed Rate1 | 2.96% | 3.50% |
| Monthly Mortage Payment | $1,340 | $1,440 |
| Total Interest Paid | $163,200 | $197,300 |
1 Interest rates are for sample purposes only. Your own mortgage rate will be different.
The result is a more affordable monthly payment, fewer long–term interest costs, and a bigger home buying budget (or, often, all three).
Take a Step Back, Be Wise, and Use a Realtor
Purchasing isn’t easy right now. FOMO-fueled low inventory, competition from cash buyers, a flood of investors using real estate to stave of the decreased value of the US dollar due to inflation, and tougher mortgage standards mean you need a level-headed Realtor to guide you through the home buying process. Don’t simply put your money into a home that you will be unhappy with. You need a plan that falls in line with your budget, your employment situation, and your location.
So, what should you do? If you have property to sell, this is the time to go ahead and list it – don’t wait to repaint or repair. This is your window of opportunity that won’t last. No one knows when the market will change, but circumstances are so unusual that a change is inevitable.
If you are a buyer, the situation is more challenging. The one thing to remember in real estate is that you cannot change the location. It is far better to buy land or a house in your preferred location than to buy what is available in an area you do not like.
The real estate market can be difficult, but FOMO shouldn't be the only reason you choose to buy or sell.
Now is the time to act – there are still fantastic opportunities available, and I can certainly help you to find them.
I would love to speak to you about anything real estate, please contact me at brandonrwood19@gmail.com or 801-885-2558.