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FOMO

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Enjoying what would be one of the last times eating at the Hungry Cat, my girlfriend confided in me her incredibly awesome schedule for the weekend. Then she turned to me and asked if she should actually take the weekend off and finally catch up on some sleep. After a brief pause, she leaned over and said, “I just don’t know if I can miss all these awesome opportunities… I have the worst case of FOMO.” Shit, I thought to myself, do I sound cool and just nod my head and pretend… nope my mouth already opened up and said “What the heck is that?”

She giggled, leaned in and explained FOMO to me in the kindest of ways…

F = Fear

O = of

M = Missing

O = Out

I smiled and we both laughed and then dove in to our final meal at the Hungry Cat. While we continued to discuss her dilemma, I unfortunately went into my own little world. I have a terrible tendency to disappear mentally once someone triggers a “deep thought” in my mind. The actual concept of FOMO really tugged at me and I wondered how much of it drives the real estate market.

Genuinely, I believe in the value of residential real estate, especially long term. However this concept of FOMO and its relationship to real estate really hit me at my gut. I started to think about how fear plays into the role of people’s decisions on purchasing a property. Do people just buy a home out of FOMO?

An obvious question with an obvious answer of YES, but how does that affect the general real estate market, especially in Santa Barbara.

My first thoughts took me here: Supply and demand. Basic rule of economics. There is a limited supply and demand of real estate here in Santa Barbara on the principles that we are cut off by the mountains and the ocean. Buildable land in some ways is scarce. Getting permits to build new construction homes is incredibly difficult. Therefore what you see is what you get and timing is everything. Unfortunately, the timing aspect is incredibly critical and I believe that might be where Root 1 of the issue of fear is derived.

You get what you get. Really. There is no control when it appears on the market. Realtors are not genies and they cannot make a 3 bedroom, 2 bath, 2500 square foot home with remodeled kitchen appear on the Upper East, by May so you can enroll your kid into Roosevelt, enjoy the summer to move in and you luckily got locked into a good interest rate before it goes up. The hippy in me (I was told I have the “tiniest of tiniest crunchiness” by a dear friend) will send the vibe out to the Universe for that to happen to you, but seriously, it’s a total luck of the draw if we can make all that timing work. Not to mention 10-15 other people have that on their wish list and want to make it work. The kicker is not just that 10-15 people have that on their wish list, it is that there is only 1-3 houses that fit this criteria, on average, per season. And no offense to the greatest generation, but you cramp my style when you walk in at the 11th hour with your all cash, contingent free offer, with 6 month rent back at under market value. Try delivering that news to your poor sweet buyers who are dying to live on the same street as a dear friend.

In my experience, I call that scenario the X factor. I have no control over the emotional… I am done looking… this where I have always wanted to live… take my life savings... I will live here until they burry me… Buyer. They always show up at the end of the 7-10 multiple offer scenario and literally crush the crap out of the emotions of all the families offering up their first born just to get into the home so they can get the school district that they need for their kid. How the heck can this new generation of buyers compete with that?

Bottom line is that they cannot.

On to my next thought: Baby Boomers were raised mostly by people who saw the Great Depression. Their motivation to put all their pretty pennies in the bank like they were supposed to so they could retire on cue is pretty high. We are seeing them come into Santa Barbara after living 30 plus years in the “damn cold” and throwing down like drunken bachelors on their last night in Vegas because they can. “I have $1 to $2 million in cash that I spend on a house. Show me what I can get.” Is their mantra.

On that note, there were some people who were way ahead of the curve on their thinking. This is where I believe root #2 of the FOMO Real Estate problem exists.

The Santa Barbara rental market continues to be incredibly competitive and stay strong. People wonder why and this is my theory – right or wrong – here it goes – remember from my first blog post – no judging. Just something to make your head turn to the side and think about...

Prior to the last real estate market crash the stock market hit an all time high. I believe people cashed out and waited patiently for the real estate market to crash. When it crashed, they came in fast and furious and attacked the bank owned inventory. Bidding wars ensued on anything marked “Bank Owned” or “Foreclosure” and I almost wondered if people were actually getting “deals” because there were so many liens on the property and so much back work to get them “cleaned up.” Regardless, they ate through the bottom of the inventory like sorority girls going through fat free ice cream in the 1990’s. By the time the investors with cash started to slow their bank role, the “regular buyers” were finally given a chance to jump in.

So what does that mean? All the homes that were bought cash and not immediately owner occupied became investment properties. Most likely they were converted into either long term or short term rentals to pay down the mortgage while the owners worked and lived in area that was more affordable. These investors were planning for the “long play.” Scenario One: buy my dream home now, have someone else rent it and pay the mortgage. Retire with home already paid. Scenario Two: buy in the area of my dream home location, have someone rent it to pay the mortgage, sell it when I move there so I can have an asset/home that appreciates to local area. Retire with home already paid or an “affordable mortgage.”

I am sure if you are local you know of someone or you, yourself have experienced the call: “Thank you for renting our house. We retired and are moving in.” Do not be surprised if this starts to happen rapidly over the next 20 years. Remember there are a lot people that are “through with the damn cold...”

So how do these two “Roots,” as I have decided to call them in this article, grow into FOMO? Basically you begin to freak out because there is limited inventory and you don’t want to be the person paying $6000 in rent when you could at least be paying some type of mortgage. Also you realize 30 years is going to come and go pretty fast and adding just a little bit to your monthly mortgage payment begins to cut down on that time rapidly. Retirement actually seems real. You do not want to be missing out the opportunity to actually own something that you can either hand down to your children or live in for free until they take you out the front door feet first.

Buying a home, actually puts time on your side for once in your life and who doesn’t want to experience that...

So is FREEDOM from Real Estate F.O.M.O. POSSIBLE?

Yes. Absolutely. First recognize that the real estate market is a long term investment. I mean a really long term investment with a minimum 7-10 year commitment or ideally 20-30 years. Our local market typically cycles through every 7-10 years from highs and lows, and although this is not completely predictable, just like surfing, you can learn to watch the pattern of the waves. Take advantage of the slow holiday seasons to jump into the market. Know that you do still have time to get in and that if you put your mind to it the opportunity will happen.

Think I am being unrealistic – talk to my 21 year old client, who walked up to me one day and said: “Renting is wasting my money... Let’s figure out how I can buy a house or condo.” Four months later we were closing escrow. She sent the intention, pleaded her case with some family members, they came together with the down payment and here she is paying a mortgage that is less than the rentals she was looking at with more amenities. Yes, this is a rare case, but still, will and determination are interesting when people set their minds to something. More importantly she spoke to lender right away when she set the intention and got an actual game plan of how to get into the market.

Second piece of advice, mind your own. Don’t worry that all your friends are buying a home. It’s good to have the motivation, but if you are not ready to make the commitment, you do not have to not beat yourself up over it. If you are anxious about wanting to get into the market but things are not lining up, just keep saving the cash for your down payment. You will be surprised, what putting every little penny away can do. Maybe this will bump you up into the next category? Or just make you a stronger buyer for when the stars finally line up.

My final piece of advice: it takes time to find the right home. Start studying the market now. Fear of missing out can be conquered by the knowledge in knowing what you want and recognizing it when you see it. You will only know what you want, and be confident in your decision when you have a strong understanding of the market. Go have fun and start visit open houses! Go get prequalified! (PS - Highly recommend either Jon McCuskey @ jon.mccuskey@homebridge.com or Kelly Marsh @ kelly@broadviewmortgage.com - I have had excellent client feed back from both and they are painless to work with.) You can catch up on the latest inventory with the new Compass App called “Collections” is an easy, ad free way to start seeing what is on the market without any commitment. You can access it via the apple store or sign up at the following link: https://www.compass.com/agents/santa_barbara_montecito/jennifer-berger/Remember the FDR’s saying: “The only thing to Fear, is Fear itself...”