FOOP vs FOMO

Saw this post on r/AusFinance calling a softening of the market

Despite being bullish on property, I’d have to agree with their point and think sentiment is going to change at some point mainly because “in real estate, perception (or rather mis-perception!) can be a very powerful driving factor”

Post by Henny Stier:

After what can only be described as the most surreal quarter of Sydney real estate, we are starting to notice some signs of the market shifting gears. I write this not as some keyboard warrior reading lots of articles. But as a Buyers Agent whose team physically inspects 50-60 properties per week and attend 10-15 Auctions each week. Because we really pound the pavement hard, we are able to really pick up on even the most subtle of changes in the market which I'm pleased to share with PTA.

This is our on-the-ground observation of the past couple of weeks in metro Sydney area (we don't cover outer Sydney, regional or interstate so we can't comment about that):

1. Most Auctions are still going very strongly. However, quite a number of properties have sold just a day or two before the scheduled Auction. Indicating that perhaps there was not as much interest as in the initial weeks or there was just one stand-out buyer in the end and a better outcome can be achieved by doing a deal prior. Fear of Missing Out (FOMO) is slowly being replaced by Fear of Over Paying (FOOP).
   
   
2. The number of new listings has gone up dramatically and we expect this will continue in the coming weeks. Especially once school holiday ends.
   
   
3. Vendor expectations and greed are at an all-time high. Every agent we speak to is having a hard time managing their Vendor's expectations - which seem to increase exponentially week by week! These are Vendors who have watched their neighbour's property sell for a ridiculous sum at Auction and automatically assume their property is superior (even when it’s not!) and therefore should get even more.
   
   
4. Vendors are inflating the figure that they would sell their property for because they are factoring in the amount they think they would need in order to make their next move. "I know my house is currently worth $X; but the market might go up another 15% in the coming months when I will be buying, therefore I won't sell my house unless I get $X + 15%."
   
   
5. Many buyers are feeling horrified, fed up and priced out. Therefore, many are either voluntarily or involuntarily taking a break from house hunting. Many still want to buy but quite simply can no longer afford the area they want to be in. So, they are calling time-out for now as they wait for the craziness to settle down. A dramatic rise in house prices of 20-25% in 6 months is just not sustainable no matter how you look at it.
   
   
6. Q1 this year was characterised by panic buying and massive overpaying just for the sake of buying something. We expect Q2 to be a period where agents have to try and bridge the widening gap between astronomical Vendor expectations/greed and decreasing number of buyers who are prepared to pay anything. The most desperate of buyers have bought in Q1. There will still be some really desperate buyers - but each week that goes by, there are less and less of them. Those who are still looking will have a lot more properties to choose from in Q2 and Q3 - reducing the pressure to pay big bucks.
   
   
7. As soon as the number of listings go up, the lemon properties will no longer trade so swiftly or at such high prices. There is an influx of lemon properties on the market at the moment. Many of them were only bought recently and the owners are keen to off-load them quickly while the market is still hot and buyers aren't as discerning. Once buyers have more choices, the lemons are going to sit around or get passed in at Auctions.
   
   
8. As more and more properties get passed in or withdrawn from Auction last minute (due to the gap between Vendor expectations and buyers' willingness to pay up), there will be the perception that the market is not holding up. This won't necessarily be the case - but in real estate, perception (or rather mis-perception!) can be a very powerful driving factor.
   

Our advice to anyone looking to sell is to do it sooner rather than later while there is still a surplus of highly motivated buyers.

Our advice to anyone looking to buy has been pretty consistent. Focus on buying only A-grade properties which will stand the test of time. The more inflated the market is, the more you have to be careful with whose advice you trust and what you buy. If you overpay for the wrong property, you will be stuck with an asset that will underperform in the future and that you won’t be able to easily recoup your money from if you want to sell it for whatever reason.

 

3% a month rises dont seem sustainable.

but for people who bought in previous cycles, if you are not looking to buy or sell, it doesnt matter much. The long term trajectory is still up.

 

Great great post!
As someone whose house will literally go to market next week I can highly relate to all these points.

The area I am Looking to move to is suffering hard from FOMO. Houses are being snapped up in record time and people are paying overs.
So much so a piece of garbage home which would have sold for 750-800k 6 months ago is now literally selling for 950-1mil.

It’s unsustainable and buyers like me are now definitely moving to FOOP for this area. BUT what is also interesting I am seeing is other more expensive and blue chip suburbs within proximity are not experiencing the same growth and properties are listing longer.

For example a stunning home in Airport West just sold for 1.2. In the other hot suburb it would have maybe sold for 1.1-2 in the good pocket.
But the “good pocket” is still no match for APW in terms of property fundamentals.

 

I'm not convinced about how sustainable Sydney Markets are , though think other places are more so .

Stats wise the warning sign for me is the level of stock on Market which is Sydney has now starting trending upwards . The bottom level was back in 2015 and it has made three further troughs since then and each trough has been higher than the one before . In Chart analysis this is a strong indicator the market has changed .

Brisbane , Darwin , Hobart , Adelaide & Perth are in much more established down trends.

The other warning sign is that all of the experts are predicting a boom ( remember they're Sydney Centric , because in the Australian Property market , that's the only place that matters ...) and they're never right . The more people who predict a boom , generally mean that it's closer to the top .

Sydney peaks and that because a " fact " , well there's lots of cheap money that's looking for a home , so I wouldn't be surprised to see Other places surge more .

Luckily we're not buying or selling in Sydney so no dilemma here .

Cliff

 

You have to remember that this only covers Sydney. In Brisbane, I think that FOMO is going to continue on for quite a while because our prices are cheap compared with Melbourne, Canberra and Sydney. Interest rates are low and so even if property goes up by 20-30%, the repayments are still affordable.

 

on the contrary , crazy sale prices often translate to rising land valuations ( great if you have a mortgage ) and increasing valuations often lead to higher rates ( and service fees )

another possible downside ( obvious where i am located ) expensive properties are often redeveloped into multi-dwelling , increasing the strain on infrastructure

but 3% increases a year look unsustainable to me also , you are betting easy credit will continue and no extra disruptions to the employment data ( retrenchment fears can really tame a market down )

 

In the Shire Bay areas of Sydney

Good homes are going really quick $2-3 Million for good homes are being snapped up
Early $3s taking longer .
Waterfront selling 1 Million over guide.

 

It's natural that the market will at some point reach an equilibrium, the faster it go's up the quicker that might happen.

Rising prices will lead to some FOMO, it will also at some point mean buyers are unwilling/unable to get the credit to keep bidding.
It also attracts more sellers the higher it rises.

Other factor has been incentives and FHO flooding the market.

Personally I know 1 just bought PPOR, 1 looking to Sell PPOR, 1 looking to upgrade PPOR, 1 now looking to offload Investment.
Can't say I know of anyone looking to buy an investment property now.
The interest in selling has been driven by the hot market, and fear of missing selling into a hot market.

The unknown is the affect of foreign buyers, open borders.

I have personally noticed more properties sitting on the market a bit longer or getting pulled off, but at this stage have written it off to unrealistic expectations.

 

If the market does "turn", how quickly does the sentiment change?

Are we talking a surprise 60% clearance rate out of no where, or are we talking weeks/months?

 

In the capitals perhaps...but in the regions FOMO is set to continue for many years though.

And I think that all of us are starting to get a better handle on the above paradigm shift...people moving from the capitals to the regions...too

 

I saw this image in a Macrobusiness article that came up in my newsfeed.



Going off historical data, I'd guess that the spike in mortgage lending isn't likely to be sustained over the long term, but property price growth will continue for some time, perhaps up to a year, after it turns.

Tom Panos tweeted an article that he wrote calling the top of the market. I'm less informed than he is, but I wouldn't be surprised if prices keep on rising into spring.

 

There are markets within markets and thus in Australia that literally means thousands of separate markets driven by various fundamentals, however.

In view of the above...unless investors return in greater numbers...it's hard to see Sydney powering ahead for the next few years...considering the median price and recent spike in listings in numerous suburbs.

I don't see a major downturn (broadly speaking) across Sydney but I do think the market may be peaking though and therefore prices most probably won't be much higher in 12 months...after which we'll see a period of stagnation.

I see much more potential for growth in Brisbane over the next few years...providing levels of stock continue to decline...and even more growth potential for regional QLD due to the capital/regional shift and affordability constraints that are already impacting Sydney and key markets in regional NSW.

 

Been talking to some agents and buyer's agents in Brisbane and similar trends may be starting to occur in inner/middle ring, 1.4m plus homes.

The momentum is still strong but supply is anticipated to hit the markets over the next 6 months.

It's not a far stretch to guestimate that the height of this frenzied boom is right now and may take a breather later on this year. Not saying it's going to happen, but I wouldn't be shocked if in retrospect this was the height for that stock type.

 

The border restrictions have only recently been lifted though.

So I expect that the exodus from VIC and Southern NSW to Northern NSW and QLD will ramp up significantly over the coming months...particularly as the weather cools down and people can move about more freely; I expect demand to exceed supply across Northern NSW and QLD in the coming months and years as the post-COVID South to North migration gathers pace.

 

have a look through macro businesses property news archives .

you will find a whole pile of opinion pieces reporting market peaks or impending falls and a whole pile of articles reporting what is happening , markets going up .

they have a summary article on australian property saying it’s in one of the biggest bubbles in the history of capitalism .

I pay absolutely NO attention to macrobusiness. They’re up there with the economist in their predictions of doom in australian property

cliff

 

P plater millenial property guy who made 100k on first PPOR here. Just wondering about the following potential impacts to current boom;

1. International students numbers dwindling considerably and heavily affecting a lot of units/apartments in prime locations (several think tank pieces and figures reflecting this already)

2. UBS latest research alluding to approximately 60% of jobseeker recipients contemplating cashing in on their homes.

3. International borders reopening by the end of the year.

I feel these 3 will also be very key to the market's next move.

 

I can understand the gist of the post however the data I am seeing now from core logic daily index, is not supportive of this trend at all. It is showing the growth accelerating in Syd in the past 8 weeks, massive in Mar and Apr appears to be overtaking Mar. It is ferocious!

I am sure a lot of BAs would have their own opinions and what might be happening is that 'his' (BA's) locality might have maxed out to say 30% growth etc and that the surrounding/ true ripple effect is really playing out which is causing the index to rise that furiously! He is then taking less activity/ growing stock levels in his patch, and deducing as if the whole Syd is slowing down. Syd is not slowing down by any metric!

We are now seeing the growth expand to middle/ outer areas - this is also playing out in Mel and in the month of Apr, Syd is increasing at twice the rate of Mel (50% annulaised growth) and significantly more than Bri, Per or Ade.

My observation remains that over a much longer period (say over the next 5 years), Bri, per & Ade are likely to deliver more growth as a % than Syd or Mel and bring some equilibrium to the values however writing off Syd off the back of a very subjective BA's analysis is countering to the actual daily data I am seeing.

 

1. The delayed rollout of the vaccine is a definite handbrake on the economy (after the initial bounceback we now having) and migration. I was thinking there was an opportunity to buy apartments at good prices before the rebound, but given the rebound is now being pushed out and rents falling, you have to be brave to buy inner city apartments as an investment (PPOR is fine)

2. Probably only going to create localised issues in international tourism markets (e.g. Cairns). However, the 1/2 price tickets scheme seems to be doing the trick.

3. Seems highly unlikely to me now given vaccine delays

 

There was no chance that we were gonna have internationalTravel before the end of the year and regardless of which by the end of the year we will have most of the population immunised.
Also consider the **** the government may allow fully immunised people that are healthy to still come for the purposes of education or permanent migration even if this entire Australian population is not immunised

 

Good video ,guys very underrated Good information has very clear explanations and in the past has been pretty accurate.