FOMO vs FOOP: Are you missing out, or overpaying?

Guest Post from Tony Alexander

Each month for three years now I have run a survey of real estate agents around the country to get their views on how things are going at their particular coalface. This survey delivers the only measure of FOMO (fear of missing out) available in New Zealand along with the only measure of FOOP – fear of over-paying.

These readings are important because they give us insight into the pressure which buyers feel under to get a transaction over the line or to be in the market at all. FOMO readings over the pandemic frenzy period from mid-2020 to late-2021 ranged from a gross 53% to 92% of agents saying that buyers were displaying FOMO. Since February last year the range has been 4% - 7%.

Buyers do not feel that they need to hurry.

Why do they feel this way? Mainly it is because they have little expectation that prices will go higher and that by waiting, they will be worse off. We see this in the reading of FOOP. I ask agents what the main things are which buyers are worried about and during the frenzy only 16% - 37% of agents said buyers were worried about prices falling after buying.

That reading has been above 50% since February last year and was still 67% in my most recent survey.

Clearly, the evidence from REINZ data that prices have been falling will play a big role in the thinking which buyers have about where prices are headed. But so too will more personal factors such as their concerns about interest rates and the ability with which they, and therefore others also, can access finance.

A gross 85% of agents in most months since April last year have been reporting that buyers are worried about interest rates. Those worries remain high especially in light of the 0.5% rise in the official cash rate on April 5 and some banks moving up their 1-2 year fixed mortgage rates.

But what about access to finance?

My most recent survey shows that 63% of agents feel buyers are worried about access to finance. That reading is down from 75% six months ago and is the lowest since October 2021 just before Loan to Value Ratio rules imposed on banks by the Reserve Banks were tightened. Now, those rules are set to ease.

The Reserve Bank have just announced that following some box-ticking consultation with banks, they will ease the rules from June 1. Banks will be able to have 15% of their new lending to owner occupiers at deposits less than 20% of the property’s valuation. The rule imposed from November 2021 was just 10%, down from 20% before that.

The minimum deposit for investors will also be cut from 40% to 35% but only 5% of lending to investors will be able to be less than that, which is unchanged from current settings.

This easing up of the straw which broke the back of the still soaring housing market late in 2021 is an important sign that we are nearing the end of the period of house price declines. Other signs are the growing boom in net migration inflows which now stand at 52,000 over the past year. There was also only a 0.2% seasonally adjusted fall in house prices recorded in March from -1.1% on average in each month since December 2021.

Also, dwelling sales improved slightly in March and my surveys of real estate agents and mortgage brokers have for three months been showing more first home buyers in the market.

It is likely that very soon FOMO will start rising and FOOP will commence falling.

These changes will be numerical representations of a shift in market sentiment away from expecting further price declines and that will mean the many buyers who have held back will start to step forward. Will this impact prices much? Eventually yes. But moves are likely to be limited until interest rates start falling. Once they do however, then the dynamics in play of catch-up buying, accelerating population growth, and falling construction, could produce upward price pressure which may surprise many people from later this year.

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