Fear of missing out spurs first-time home buyers

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By John Grace

Contributing Columnist

We will begin this month with understanding the common experience known as the fear of missing out.

I enjoyed meeting a young family recently at a private school social event. I was impressed with how much the parents are entangled in the perception that other than educating three young sons, nearly every waking moment must be put toward buying their first home.

Keep in mind that the parents are 32 and 30.

The fear of missing out is a misguided perspective that others are having more fun, living better lives. Our psychologist friends tell us that the experience involves a deep sense of envy that can adversely affect self-esteem, as well as decision making. Social media sites such as Facebook and Instagram can exacerbate the experience.

When it comes to residential real estate, all you hear about all over the news these days is about how low interest rates are and how little selling inventory happens to be available at this time. The current state of the housing market is a big influence on the fear of missing out both for buyers as well as sellers.

The thought of not acting now that could cause a loss of benefits other people are enjoying is very strong. But in the nucleus of this external stress, the key is to making astute observations in a responsible manner long before signing any contract to buy or sell.

While it reasonable to look at inventory and sales data, such practice can lead to missing one of the most fundamental pieces to the puzzle. Hyperventilating will not help you see the big picture. In fact, the practice can be just as hazardous to your health as it is to your wealth.

Here’s the pattern most people, including professionals in all walks of life, simply miss. We follow the rabbit down the hole mesmerized by interest rates, location and inventory.

We almost universally fail to recognize that the foundation of buying and selling homes is as simple as studying the buying and selling behavior based on age. Here is a fundamental driver of buying and selling behavior, according to the U.S. Census Bureau: Age 31, the average age of first-time home buyer. Age 41, the average age of largest home purchase. And age 78, the average age when Americans sell their homes.

Notice the couple I was talking with is 32 and 30. Something typically happens around this age where couples often decide 31 is the time to buy their first home.

Notice such practice has not one thing to do with inventory, location or interest rates. We all know that we are individuals, but what we don’t see is how often we are part of the pack as we do the same thing at about the same age.

Now when you hear about those bidding wars please look more closely under the buyer hood. The home buying competition isn’t your neighbor. It’s Wall Street.

A lot of suburban single-family homes have been purchased by big money, not moms and pops.

“Pension funds, investment firms and Wall Street banks are snapping up family homes in Europe and the United States at a rapid pace as prices rocket higher, looking for alternatives to lockdown-hit office parks and shopping malls, and betting that a permanent increase in remote working following the coronavirus pandemic will keep demand for suburban houses elevated,” CNN reported Aug. 2.

My suggestion to the young family anxious to buy a home came down to this. Every 7 year old in the world knows that all bubbles burst. In fact, they know that when the bubble gets bigger so does the inevitable burst.

If you are just fine buying now, only to see California home prices drop 50%, for example, buy away. If that possibility bothers you, let me suggest that you keep your down payment powder dry to be well prepared to strike after a significant drop in prices.

It is my opinion that home prices are at nose-bleed levels thanks to 76 million Baby Boomers, along with immigrants, caused a significant increase in population that is enjoyed by these United States of America. Such an event only happened once in the world. And it only happened once in America. It does not look like an increase in population of this magnitude is happening again.

When we look ahead we can see that 78 is the age most American sell their homes, per the U.S. Census Bureau. According to the CDC, 78 is also the age most Americans go to heaven.

With Baby Boomers born between 1946 and 1964, now 57-75, making up 24% of the population, you tell me what you think is going to happen to prices and rents after that percentage of the population passes on? One thing is for certain to this observer. People dying will outpace people buying homes. Before your next move, look at the cards in your hand. Will your play prove to be good news, bad news or no news?

John L. Grace is president of Investor’s Advantage Corp, a Los Angeles-area financial planning firm that has been helping investors manage wealth and prepare for a more prosperous future since 1979. His On the Money column runs monthly in The Wave.

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