FOMO: Fear of Missing Out
There is a term in the financial world that keeps coming to mind as I watch mortgage rates increasing: FOMO. Fear of missing out. This term is expressed most often as an investor watches the position (stock, cryptocurrency coin, investment properties, etc.) go up and up and up in price, anxiously watching everyone else celebrating their gains because they already bought in. They watch, biting their nails in agony deciding if it’s still safe to buy. After all, who wants to be the last guy to buy in just as the price then starts falling? (If you bought Bitcoin at $19.500, you feel me!)
Now, if you’re the guy that bought half-way up the rise, you have plenty of time to sell off and still have made some money. You feel safe. If you are the guy that bought just as you realized that this price is as low as it’s going to go (called “support” in the trading world) you are doing the investor happy dance. See happy investors doing the happy investor dance below… that could be you in a few months.
Then there is the other guy. The fear of missing out drives investors to make hasty choices because they want to make money like the happy dancers, but they waited too long. They are locked into something that they kick themselves for. These would be the housing bubble buyers of 2007-2008. And you can rest assured, in my fifteen year opinion, we are no where near “in a housing bubble” right now and you are safe to buy a home. There are always unforseeable circumstances that can change that opinion, but keep in mind that your home is a long term investment that you get to enjoy for years to come. If you plan on staying in your home for ten years or so as you raise children, build your career, etc. then fluctuations over the next few years will likely mean nothing to you. You will still be in a home with a payment you felt comfortable committing to (unlike being at the mercy of the renting market.)
Like stock prices, you can think of mortgage rates as an investment position. Considering that your home is likely the largest investment you own or will consider owning, the mortgage rate should be just as important in your buying consideration as the actual home selling price. But I’m here to tell you that when it comes to buying your home, FOMO is not at play here. Not yet, again, in my opinion. I’ve been a realtor for many years and I just don’t think that we are not at the top of the rise in interest rates, nor are we in the middle. I think you can still be doing the happy money dance. Getting into a home right now does not put you in the “Bitcoin Investor” territory. In fact, this is the start of a rise and the only fear of missing out you should have is fear of a higher mortgage payment if you wait until next year.
Let’s investigate why now is the best time to buy a home:
Rising Interest Rates
Mortgage buyer Freddie Mac said in mid February of 2018 that the average rate on 30-year, fixed-rate mortgages rose to 4.38 percent, up from 4.32 percent week the week prior. That’s the highest rate since April 2014. At the start of the 2018, the average rate was just under 4 percent. FOMO is setting in home buying competition, that’s for sure. Purchasing competition will only get tighter which will drive up home values as we see bidding wars over entry level homes. The real FOMO here is not “should I wait to see if rates go down?” You should be concerned with home prices going up because the rates are still low, but rising.
Renters Can Finally Buy Again
Since the 2008-2009 financial crisis, rents have been rising nationwide. Those who went into bankruptcy in 2009 (the year in which bankruptcy rates rose by 32%*) are starting to have those public records fall off of their credit report and are opting back into the American dream. As more buyers flood the market, those home prices will rise. This will increase rent prices, as the land-lord/investors charge for the increase.
If you continue renting, you will be paying more for less house than your neighbor who owns.
According to the Bureau of Labor Statistics, the job market continues to improve. The unemployment rate is a very low 4.1 percent, with steady gains in construction, health care and manufacturing. And with the labor market showing undeniable signs of tightening, wages are starting to tick up, rising at a 2.9 percent annual rate last month, the fastest since mid-2009. As more Americans are gainfully employed and earning more, their buying power increases and they are looking to, you guessed it, buy the American Dream.
Millennials Leave the Basement
Many millennial experienced firsthand the family pain, fear and sorrow of watching their family home go into foreclosure. Their parents bought at the top of the market at over 6% interest rate, or even worse, on a 20/80 or five year adjustable loan and financial crisis struck. The American dream has felt more like an American nightmare; homeownership was a ball and chain that tied them down when they are otherwise a more free spirited generation full of wonder-lust.
That’s changing. They are experiencing the safety of responsible investing. They are getting married, buying puppies that need back yards, and yes, they are having children of their own (which just made me feel really old) “The economy will one day improve, and the millennials will move out of their parents’ basements. When that happens, expect to see homeownership rates move back higher.”*** – Barry Ritholtz is a Bloomberg View columnist
I’ll Guide You Into A Responsible Choice
I’ve been a stock broker. I understand investing. I also love homes and I love the experience to helping families gain their American Dream. I’m here to answer your questions. No pressure, just help. Email, call or text me and I’ll give you every tool you need to make the most informed decisions to buy a Phoenix area home.
Leon Jimenez, the phoenix Home Guru Leon@phoenixhome.guru 602-614-6863