Buyers in the Real Estate Market – FOMO is Being Replaced by FOBO
The real estate market, like the rest of society and the economy, has in recent years rushed along like a roller coaster and gone through quite a few crash courses in adaptation. For the approaching winter period, forecasts are painted in rather dark tones, and the question "what will become of us" is troubling even the brightest minds in the field. Will the bear market appearing in stock markets also extend to the real estate market?
Recent years have unequivocally shown that predicting the future is completely pointless. Skating on this thin ice nonetheless, one would like to believe that first and foremost, the real estate market will reach the equilibrium point known in economic theory as supply and demand balance, or in simpler terms, the market will achieve a normal state. Buyers will have the opportunity to choose, they will be able to negotiate. Sellers will have to make an effort for a good product and see to it that their product stands out and finds buyers. It sounds elementary, but the market has not actually functioned this way in recent years. Buyers have had rather limited choices and instead of negotiating, they have had to live under the conditions of FOMO (Fear of Missing Out). Developers, partly due to rising raw material costs, have been forced to raise offering prices by percentages that cannot in any way be considered consistent with reasonable market development, and the entire secondary market has proudly sailed along with price growth in the wake of new developments. Many sellers found an inner lion within themselves that encouraged them to add a certain percentage to every new offering, because after all, the neighbor always has worse real estate.
The state of the market cannot be considered rational or sustainable when real estate companies must, figuratively speaking, organize training courses for employees on how to conduct auctions, or when some real estate brokers' time is spent with dissatisfied clients who need to be explained why they specifically missed out on the offered property.
Despite all this, market assessments should not swing to the other extreme, which recent weeks have made it possible to find signs of. Every new development discount campaign or "free" parking space offering does not immediately mean market collapse or bankruptcy risk for a specific development project. Just as we consider airline, hotel, or retail store discount campaigns normal, we could also consider new development or other object/service campaigns normal. Marketing, sales, and sales representative effort in the name of product realization is part of a normal market economy, and to label, for example, a "kitchen furniture included" campaign on the real estate market as a harbinger of an imminent crash seems somewhat exaggerated in the context of other economic sectors and marketing campaigns. However, increased supply and various campaigns on the real estate market can give buyers a completely new signal – they can choose or wait, hoping for a better offer. From a consumer perspective, FOMO (Fear of Missing Out) is being replaced by FOBO (Fear Of Better Options), which means that buyers are not afraid of missing out on a product, but are afraid that a better offer might come "around the corner."
Actually, we all hopefully want the market to be in a reasonable balance, for there to be competition between development projects, for buyers to have sufficient freedom of choice, but at the same time also understanding that one cannot deliberate for long or haggle over each development project or its penthouse apartment. Although it is clear that emotions are an integral part of the real estate market, currently both households and entrepreneurs have entered a particularly rational era, which certainly means pressure on offering prices and the number of transactions, but from the perspective of the market's long-term health, this is not a bad situation at all. Well-thought-out real estate projects and well-thought-out purchasing decisions by buyers are the guarantee of a sustainable real estate market.
Article author: Raul Regno, Member of the Board of Domus Kinnisvara
