DON’T FOLLOW THE HERD
Be fearful when others are greedy. Be greedy when others are fearful.”
– Warren Buffett
THE CURRENT MARKET
Mortgage interest rates have doubled since January 2022 resulting in a smaller pool of buyers. Interest rates in the 3 – 4% range in early 2022 combined with low inventory resulted in a massive supply and demand imbalance. The result in Greater Boston was a frenzied real estate market. Bidding wars with 10 – 20+ offers were commonplace in the spring. The Federal Reserve’s goal is to decrease inflation by reducing consumer demand. The result in late 2022 has been lower demand to buy real estate. The number of bidding wars in the last quarter of 2022 have been greatly reduced.
Since buying real estate is a highly emotional process, buyer behavior can be irrational. In a low inventory, low interest rate market, there are multiple buyers for every listing. Buyers become more interested in a property if they know that other buyers also want the house. A bidding war gets buyers emotionally excited, which can override making an economically rational decision. For investors this is also known as a greed cycle. The flip side is a fear cycle, where buyers are too scared to buy due to uncertainty. Higher interest rates, more inventory, fears of a recession, and fewer buyers in late 2022 are scaring many buyers.
DON’T FOLLOW THE HERD
One of billionaire investor Warren Buffett’s most famous quotes is “Be fearful when others are greedy. Be greedy when others are fearful.” Warren Buffett’s key to success is long term thinking. Real estate is the ultimate long-term investment, so buying during a fear cycle can be the best time to buy. Anyone that overcame fear and bought real estate in 2008 – 2010 has been rewarded with exceptional returns. Although late 2022 is nowhere near as scary as the Great Real Estate Recession, many buyers are sitting on the sidelines due to fear. The winter of 2022 – 2023 is a great opportunity for buyers to acquire real estate with less competition. Unlike in the spring of 2022, buyers can also get offers accepted under asking price with a home inspection and mortgage contingency! Also, keep in mind that the sale price is forever, but the interest rate is not.