FOPO: The New Force In Sydney’s Property Market
There’s a new force gathering pace in Sydney’s property market and we call it FOPO, or ‘fear of paying over’.
A surging property market can throw up a lot of interesting dynamics, including ‘FOMO’, or the fear of missing out.
But lately, we’ve seen FOMO competing in buyers’ minds with ‘FOPO’, or ‘fear of paying over’.
What’s happening in the market right now?
My team has been selling property in Sydney’s Eastern Suburbs for decades. But we’ve rarely, if ever, seen a market like the current one. In March 2021, the median Sydney property price rose by an astonishing 3.7%, according to CoreLogic data.
Sure, this may not seem that exceptional to those used to watching stock market fluctuations, but the real estate market doesn’t usually move at the same pace. It’s generally a lot less volatile, and any gains or losses tend to be incremental rather than instant.
To put March 2021 into perspective, if your home was worth $3 million at the start of the month, it was worth $3,111,000 at the end of it. In other words, its value was increasing at a rate of $3,700 a day.
Buying in a seller’s market
FOPO is a factor in all property markets – it’s only natural to worry that you’re overpaying when you make a large purchase – but we’ve noticed that it’s especially prevalent right now.
That’s because in a rapidly rising market it can be difficult to come to terms with a property’s current value. After all, the usual way to assess what a home is worth is to analyse what similar properties have sold for. However, in a fast-moving market, there are no true comparables. Instead, similar properties will almost certainly have sold for less than the vendor is asking, or less than people are prepared to pay at auction. Sometimes they will have sold for substantially less.
So, if you’re putting in an offer – or if a property goes under the hammer and the bidding goes way higher than you initially thought – it’s only natural to start to feel uncomfortable.
How to deal with FOPO
Against this, however, we’d say there are a few things to keep in mind about the property market. The first is that there is always an opportunity cost in holding off or not buying property and that’s never more true than in a market going rapidly one way or another.
Say, for instance, you decide to hold off buying a $2 million property because prices seem too high. If the market climbs another 10% by the time you commit to buying, that same property is worth $2.2 million. So now you’re left with two choices – stretch your finances or buy something that’s not as good as you once could have afforded.
Another factor to keep in mind is that property prices are set by the laws of supply and demand. For prices to go down, supply would have to increase or demand would have to fall. Neither is on the horizon right now and we believe it would take an economic shock, such as a major COVID outbreak, a spike in unemployment or a huge interest rate hike, to change things around. And, even if prices do fall, remember that over the long term, the Eastern Suburbs property market has almost always proven to be a sound investment. Prices are also being propped up by comparatively low stock levels.
It’s also worth remembering that if you’re selling and buying at the same time, your own home’s value will also be rapidly increasing.
And, given that the settlement period on most sales is six weeks, in a market such as this one you can actually pay more than expected when you buy and then by on settlement day the price looks cheap – for the same property.
Confidence is key to overcoming FOPO
Whenever you make a big purchase it’s natural to have doubts. It probably doesn’t help that there will always be critics, telling you you’ve overpaid.
But more often than not, the people who criticise won’t be those with their finger on the pulse of the property market. They’re more likely to family or friends who haven’t bought a property in years or competitors who keep missing out because they don’t understand where the market is at and think they should be able to afford more than they can.
So, if you find yourself succumbing to FOPO, stay confident and remember the reality of how the property market works: the market will only ever bear what people are willing to pay.
If you’d like advice on buying or selling in today’s market, get in touch.