Fear & Greed

There is a famous wall street saying: “financial markets are driven by two powerful emotions – fear and greed”. In this article, I am not talking about trading equities for high stakes in the big apple, but the same principle can be applied across other markets.

Let’s take the new housing market for example. It was only a few months ago, Covid-19 was an unknown, jobs were on the nose across the board and everyday life had been turned on its head. Builders & real estate agents were terribly slow and really wondering where the next sale would come from.

Along comes the HomeBuilder grant and the marketing machine takes off:

- ‘$25,000 of free money (taxpayers’ money)’ - ‘first, new home buyers' $40k boost in Federal stimulus’ - ‘there has never been a better time to buy’.

I’ve never had as many enquiries as I do right now. Business is booming, but is it really? A large percentage of these enquires have come from people enticed solely by the government grant. I like to tell it straight and have just one question for anyone seeking to ‘capitalise’ on the grants available.

What is motivating you to build your first home?

The answer to this question will generally reveal the reasoning behind their desire to enter home ownership. Have you been planning, preparing & saving for years or are you going to try to do this on an impulse?

The rationale behind your decision determines whether it is right or not.

Whenever governments provide subsidies or grants, there will be an unnatural manipulation of the market and there is always a pool of snake oil salesmen willing and ready to take advantage. Some builders have reported a wait time of up to 6 months to create a full build contract. This spike in demand will inevitably cause an increase in build costs. It is expected that after this short-term rush, the grants would have brought forward a lot of future demand and this may cause a black hole once the sugar hit of grants runs dry.

The time frame of this home builder grant is extremely short. It expires in December and this creates an unhealthy sense of urgency, distracting potential buyers from reasonable, logical thought.

A lack of available land has driven prices up in prime locations and forced many customers to begin looking for land outside of their preferred neighbourhood. Generally, people choose to build because they want their ‘dream home’. Your dream home loses the fairy-tale factor when it is not in the ideal location.

At the end of the day, fear of missing out (FOMO) is not a valid reason to buy a home. There is no such thing as a free lunch.

If you believe that building a home was right before the grants and will be after, then please proceed and take advantage of the cash bonus. If you do not believe it would be right, then you should be second guessing the move.