FOMO and Real Estate
FOMO, or the "fear of missing out," is one of many reasons why the residential real estate market bubble is growing so rapidly. Homes are selling quickly, often above asking price. There are even more realtors than properties listed for sale. While FOMO will always be evident, there are three other reasons why properties are selling so quickly.
The first is that most buyers will borrow to buy homes and are doing so right now because mortgage rates are still very low. The historically low interest rates give borrowers a low mortgage payment which can then be locked in for 30 years. It may be hard to believe, but the long-term average mortgage interest rate is a high 8%. Therefore, buyers are understandably rushing to purchase before the inevitable rate increases.
Another issue is the lack of supply. Before the financial crisis in 2008, home building exceeded normal demand. New home construction was significantly lower than normal demand for almost 10 years after the crisis. This resulted in a serious imbalance between supply and demand that especially rose during COVID shutdowns as interest rates were pushed to historic lows which created more real estate buyers than sellers.
Builders tend to ramp up new home construction when demand exceeds supply. Because of the COVID challenges, there are a number of reasons why new construction cannot keep up with demand. Workers are in short supply and sometimes unwilling to rejoin the workforce. Due to shipping delays, appliances and other necessary building supplies are more expensive or simply unavailable. And municipalities are not speeding up their permitting and approval processes which also makes new construction difficult.
Finally, the shutdowns and work from home phenomena caused many people to decide that they needed to buy new homes to get more space or a better environment for a home office. Interestingly, some are borrowing to renovate open floor plans to create Zoom friendly home offices. Others are trying to relocate to areas that give them a good work and home business environment.
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. When our first child was born, we moved to a child-friendly neighborhood. Through the years, we have renovated every room in the house and also added on to our home. The house was far from perfect, but the neighborhood was just what we wanted.
The real estate market can be difficult, but FOMO shouldn't be the only reason you choose to buy or sell. Contact one of our local bankers or mortgage lenders to help discuss your options today.