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When FOMO Takes Over

A few years back, as we observed young people seeming to become addicted to their cell phones and the social networks they provided access to, a term was coined describing this behaviour – FOMO. This stands for fear of missing out - which in this case means not being aware of something one’s online friends are au fait with and therefore being out of touch.

The term fits perfectly as a descriptor of what we sometimes see happening in the residential property market – mainly during times of rising prices. In this context, FOMO means fear of missing out on purchasing a property – perhaps because one hasn’t got finance pre-approval sorted out with a bank, or because one is not attending enough open homes and auctions, or simply not bidding high enough.

When FOMO sets in, prices can rise quickly and properties sell in a very short period of time. That seems to be the stage which housing markets have now reached around New Zealand, and we can see it explicitly in a measure I’ve developed.

Each month in the REINZ & Tony Alexander Real Estate Survey, we ask the 15,000 or so licensed real estate agents around New Zealand how they are seeing things in their particular location. Some of the key insights from the most recent survey from early-September include these.

- A net 36% of agents told us that more people are showing up at auctions. This was up from 25% in August and a net 10% in June who said fewer people were appearing in auction rooms.

- Similarly, a net 57% of agents said they are seeing more people attending Open Homes – from 45% in August and 26% in June.

- A net 81% of agents feel that prices are rising. In August this result was 59%, and in May it was -17%. That is, in May a net 17% of agents felt that prices were falling.

- Also, back in May, a net 2% said that there was no FOMO. Come August that was 57% seeing FOMO, and now a net 77% say that they can see buyers displaying a fear of missing out.

Why is there a new scramble for property underway? Another survey I run each month covers mortgage advisors/brokers. The latest one produced comments such as this.

- “There is strong inquiry on the back of low interest rates, and lack of housing stock means clients are often missing out on deadlines, auctions etc., therefore having to pay more to be successful next time.”

- “Investors are finding that properties are more likely to be cashflow positive now, and interest-only repayments on a new purchase are less than what expected rental income will be.”

And there is the simple fact that the nationwide stock of listings at the end of August was down by some 13% from a year ago and 65% from ten years back.

The scramble for property by both investors and first home buyers is not just feeding on itself through FOMO of the buyers. Sellers also are experiencing a type of FOMO – fear of not being able to buy if they sell first, thus being caught with having to rent for a while as they look for their new property. This phenomenon is aggravating the shortage of listings.

The surveys I run show these results at the regional level and anyone interested in the detail can sign up at the link below for a weekly publication containing much of this information.

How long might this period of property scrambling last and what will be the implications? There is essentially no chance that the Reserve Bank will stem the buying drive through higher interest rates over the next couple of years. And this surge is happening in spite of knowledge that many people will not be in work over the next 1-3 years. However, there is a chance that the Reserve Bank will reimpose Loan to Value Ratio restrictions on investors come March next year. That just means an increased incentive for investors to purchase now. Thus, through summer at least, it looks like housing markets all around New Zealand will remain quite active.

To sign-up to my free weekly Tony’s View publication go to www.tonyalexander.nz