Could this ne why people are overpaying for houses?

Question

https://money.com/home-buyers-...

Dave Spooner · Answer

@Brian Garlington I think that could be a factor, but I think there are three primary causes:

• Inventory is low which means more people are bidding on each property
• The pandemic was good for many people's personal balance sheet. They spent less and possibly received a stimulus. That means they have more money for a down payment and can purchase when maybe in the past they could not
• Interest rates are extremely low so people can afford more in a monthly payment (which means more in total purchase)

Eric James · Answer

When someone wants to sell a house they feel their house is worth every penny they can get. When people want to buy a house and prices are high, they think people are "overpaying".

Dave Spooner · Answer

@Brian Garlington Yikes! I had not heard that! Are they finding success in these suits?

Brian Garlington · Answer

@Joe Splitrock. Totally agree.

Joe Splitrock · Answer

@Brian Garlington the author called it "fear of missing out" but you could also call it a buying frenzy or even a bubble. If you understand human psychology, it is normal response to perceived threat. In this case the "threat" is fear of missing out. The assumption made is that although you are paying a premium today, it will be worth much more tomorrow.

Supply and demand control prices, but when prices experience faster than normal appreciation, there is a frenzy that fuels the ride up. Eventually it is just the frenzy that is fueling the bubble that keeps getting bigger. This is why real estate agents will price a property lower to ignite a bidding war. With any frenzy fueled situation, inventory eventually increases and the number of people willing or able to participate in the frenzy reduces. Worse yet, some of the people who purchased earlier in the frenzy decide to start selling. That just increases inventory further.

As strange as it sounds, when there is a frenzy, some of the people buying don't even want what they are buying. They just see their friends or family doing it and think they should do it too. Being a landlord is a great example. People jump into the business with diamonds in their eyes and quickly realize it is a business and part time job. It is fine when they have a good tenant, then one nightmare tenant and they want out of the business.

Some of this frenzy is also being fueled by low interest rates, which give you 25% more purchase power compared to late 2018. Another factor is stimulus money. A family of four in lower income brackets got $11,400 in stimulus over the last year. That extra money could go towards home purchase or even help paying higher rents. The question is what happens when rates go up and the government money dries up?

It is not all doom and gloom. Higher prices set a new price floor. Most people are not going to sell properties for less than they paid and most landlords are not going to charge less rent than their payments. It really takes a seismic type event to create a major market correction. More likely we will see prices stagnant at some point, so they will level off and return to more normal appreciation. Of course that is market dependent. Some markets have constraints and higher demand, so they will outperform the national average. Some markets that lose population could see price drops.

Brian Garlington · Answer

Dave....yes, our office knows of at least one.

Lina Bibikov · Answer

@Brian Garlington I believe what this article is referring to is regret.  I regret not buying houses in 2008, and these buyers regret not making a purchasing decision while houses were cheaper as well.

Brian Garlington · Answer

@Dave Spooner    Good points, in the San Francisco East Bay we have seen this quite a bit. It's to be expected in Oakland, but We've been seeing this also in Pittsburg, Antioch, Richmond and Hercules as well. Apparently some folks are starting to utilize "FOMO" as a strategy to try to get some money back. They will find reason's after closing and moving into the property to try to sue the seller, listing agent, buyer's agent and buyer's brokerage to claim that things were misrepresented.

Could this ne why people are overpaying for houses?

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