Perhaps at no point since the term FOMO popped up in modern parlance sometime in the last decade or two has the fear of missing out been more real. Sitting at home for nearly a full year will do that to you.
Of course, sitting at home for nearly a full year will also get you thinking about said home to a dizzying degree.
Is this where I want to be living? I need more space. Why don't I have a backyard? I've always hated elevators, now I really hate them. Do I need to live downtown? Am I ever going to return to the office? Maybe working from home isn't so bad after all...
You get the picture.
As such, pandemic-induced FOMO has developed in the housing market (developed = become a raging monster), with buyers now having a fear of missing out on smaller markets' relative affordability.
And we do mean relative.
Despite the pandemic's second wave, hopeful buyers were in full force last month, driving up home resales to yet another record-high level in Canada. This, coupled with historic low-interest rates, shifting buyer needs, high household savings, and perhaps, an uncertainty that the steadily increasing home prices will halt affordability in the months to come continued to spark interest from buyers.
As a result, RBC Senior Economist Robert Hogue says buyers are now mostly choosing from existing inventories, as new listings have fallen more than 13% nationwide so far this year.
"With demand consistently exceeding homes put up for sale since summer, inventories are running very low in many parts of the country, especially for single-family homes," said Hogue.
This means the lack of supply -- including in smaller markets -- will soon constrict activity, while still keeping "the heat intense," said Hogue.
READ: “Your House Makes More Than You Do”: Ontario Home Prices Outpacing Household Incomes
With 2021 well underway, Hogue believes there are a number of factors impacting the Canadian real estate market right now, including competition between buyers and FOMO, as the current supply shortfall is pushing house prices north as the fear of missing out returns to the market.
Given that there are few units to fight over, Hogue says bidding wars are now the norm and are likely to remain so in the near term. Strong competition between buyers in January boosted prices at the fastest rate since mid-2017 nationwide (the MLS Home Price Index was up more than 13% year-over-year).
Subsequently, Hogue says RBC expects to see prices accelerate further in the coming months. Some of the stronger increases are already taking place in smaller markets in Central Canada and the Atlantic region, which are receiving a significant influx of buyers from larger markets.
Hogue also highlighted that the pandemic has boosted outside (or big city) buyers’ attention in smaller markets, as working-from-home has made it easier for city workers to look outside of the downtown core in search of more affordable and spacious options. Though, with smaller market prices appreciating rapidly, Hogue says this search now looks "more like a rush."
"We believe a fear of missing out on smaller markets’ relative affordability has developed. This may set a feedback loop in motion whereby FOMO-motivated buyers push prices higher, which in turn cranks up the urgency to buy now before it becomes unaffordable," said Hogue, who added that it’s worth mentioning such dynamics often attract speculators who heat things up further.
With prices rising more than 20% from a year ago in nearly every small southern Ontario market, parts of Quebec, and Atlantic Canada, Hogue says affordability issues will soon confront many Canadian communities.
As such, pressure will build on policymakers to “do something about it,” though the long-term solution depends on increasing the supply of housing, especially more affordable homes. Because of this, Hogue says he expects to see "some form of policy-induced cooling of demand" increasing in the coming months.
