There are a lot of acronyms in real estate but the one getting significant attention right now is FOMO. Many believe the strong market is being driven by the Fear Of Missing Out. I think there are many factors contributing to the current extraordinary levels of demand, but I also think it is important to be mindful that another type of FOMO may soon begin to influence the market.
I think it’s inevitable that at some stage in the coming months the market will start to be impacted by a slightly different type of FOMO. A Fear Of Mortgage Overload.
There is no exact telling when that time will come but with values in Sydney increasing by 2.4% in April on the back of 3.7% in March and 8.8% over the last three months, I think it might be sooner rather than later. There comes an inevitable point when even record low-interest rates and strong employment data is not enough to quell individual concern about getting in over your head.
It will slow down. Growth simply cannot continue at the current record levels.
But that doesn’t automatically herald the beginning of the end. It is very important to be very clear that growth can ease without automatically accelerating out-of-control down a slippery slope. The Sydney residential property market delivered an average 7.5% growth over the last twelve months which is extraordinary given the economic impacts of the global pandemic.
I anticipate over the coming months, growth will ease but demand will remain strong. And yes, I do think you can achieve both those things at the same time. I think we’ll reach a point where potential buyers will remain in the market, but they will not be prepared to push their budget beyond any barrier in order to purchase.
The Fear Of Missing Out will not be sufficient to override the Fear Of Mortgage Overload.
And if you think about it in the longer term, caution isn’t a bad thing. Being careful not to overload personal debt levels now reduces the potential of a supply imbalance in the future due to financial stress that would negatively impact the market.
So, my advice is to be aware but not alarmed if and when you start to see growth easing. You might need to adjust your expectations away from setting some new kind of record but there will remain many reasons to have confidence in the core strength of the market to deliver great returns.