FOMO : Driving Current Home Sales?
Many stories in the news recently credit a spike in home sales and home sale prices to the pandemic. The theme consistently refers to Work From Home job moves from high cost locations to suburban or remote locations. Clearly, moving from high cost, high density housing or rentals to a larger home provides more space. A more relaxed location with increased outdoor opportunities and living space has attracted many individuals, couples and families. Absolutely sensible. But is FOMO as big, or bigger?
FOMO- Fear Of Missing Out – is omnipresent. Gamestop stock, Bitcoin, TESLA stock, the newest iPhone, Apple Watch, the cheapest mortgage rates in decades, or something else. We all fall prey to it in some form. It’s the definition of bubblenomics. What is FOMO’s role in the market today?
Signs of Fear of Missing Out (FOMO)
Most stories indicative of FOMO are anecdotal. There isn’t any one specific scientific measure for it and we rely on examples instead. But turn on the news and in many areas of the country there are lines of buyers. They wait for, or bid on, any homes coming on the market for sale. Buyers have taken the gloves off by shortening or waiving inspection periods or waiving financing contingencies. They also end up agreeing to fund appraised value shortfalls with cash. Bidding over asking price creates a need for more cash.
Why take these desperate measures to buy a house, any house? Buyers may be fearing a spike in interest rates. But the Federal Reserve has pledged to hold short term rates low for the next 1-2 years. The extreme rush to buy is not indicative of someone looking to move from a high cost to low cost location, but is more an indication of FOMO in action. Read our expectations for housing inventory and the opportunity coming up to buy in a market more favorable to buyers and why we believe it’s not today.
FOMO Regrets
A recent study published found that 55% of homeowners regret taking out a mortgage during the pandemic. The buyers overwhelmingly cited the low interest rates for the decision to buy. Those who regret taking out a mortgage cited unexpected layoffs, higher than expected financial obligations/ costs, and other challenges from the recession. More than 40% of those who took out the mortgage entered into a forbearance or reduced payment agreement with the lender. These “early payment defaults” can be problematic for lenders who usually must buy mortgages back from FNMA or FHLMC in such cases. Those who received relief through the lender expected a permanent loan modification (over 60%), a payment plan for extra payments in the future (20%), or a lump-sum make-up payment (10%). These figures are rounded and exclude those who didn’t know or say.
We all think we will be the exception and have our financial plan in place. Winning Mortgage, Winning Home is a guide to make that happen. Then, you can be in position to be one of those who not only bought right but also can refinance at an opportune time. Refinancing at an opportune time drove refinancing applications up more than 80% in a year for 2020 and 2021!