From Buyer Frenzy to Buyer Fear

Interest rates today match what I paid for my first place, yet many buyers would rather take a 100% loss on rent than bet on an economy that’s actually performing well. I just spoke with an agent who said he had 3 buyers recently cancel on deals due to “economic fears.”

While some homebuyers freeze, someone else is reading the same economic data and moving fast.

The Real Winners Love Scared Buyers

The risk takers win. Investors and private equity firms don’t watch fear-based media. They read Bureau of Labor Statistics reports and swoop in while regular buyers debate.

The numbers tell the story. Institutional investors purchased 14.8% of all homes sold in Q1 2024. Private equity firms accounted for 44% of purchases of flipped single-family houses in Q3 2023.

They understand what fearful buyers miss. Housing prices have increased 83 out of the last 85 years. That’s not speculation. That’s historical data with a 4.25% average inflation rate since 1967.

When scared buyers walk away from deals, sophisticated money steps in with all-cash offers and fast timelines.

Los Angeles Attracts Self-Made People Who Forgot How They Got Here

Los Angeles is full of people who came to this city to change their lives. They’re self-made achievers who survived multiple failures to reach their current success. They made calculated decisions and worked incredibly hard.

But real estate taps into something deeper. To them, perhaps, making the ‘wrong’ decision feels like risking losing everything. Maybe they have something to prove and can’t emotionally handle what feels like public failure. Maybe they forgot their high risk-tolerance is exactly what made them successful.

The data disagrees with their fear-based decision making. Current LA market conditions show 42.2% of homes sold above asking price, but 65% sold within 30 days. Decisive action still wins.

Even the best agents can’t force a buyer to buy a house.

The Math Behind Fear’s Real Cost

If you need data to make the right decision, consider this calculation. Add up how much you’ve lost in rent. Project how much you’ll lose while waiting. Compare that to list price versus sales price data from years when rates drop to 4.5-5%.

Here’s the math that should terrify any buyer. A 4-bedroom house in 90016 averages $4,500 per month in rent. That’s $54,000 per year in guaranteed losses while you wait for “perfect” market conditions. Wait two years for rates to drop? You’ve just thrown away $108,000 with nothing to show for it.

Meanwhile, that same buyer who walked away from the $75,000 discount will pay $54,000 annually to live in someone else’s appreciating asset.

Buyers don’t understand they have massive advantages right now.Ask sellers to pay your rate down for the first 2-3 years. Most sellers will do this gladly. You get hundreds of thousands in savings on home price plus a 4-5% interest rate for several years.

By the time the buydown expires, rates will likely be lower and an owner can refinance, capturing both the new rate and accumulated equity.

Start Anywhere or Start Nowhere

I bought my first place for $200K in 2006. A tiny studio coop in DC with a galley kitchen. It was microscopic but it was mine.

That $200K studio became a $415K 2-bedroom condo, which became a $750K house, and you get the point. Each move leveraged the equity from the last. You have to start somewhere.

Unless your family has money, you won’t get price, condition, location and size on the first house. Pick 2.

You’ll own an appreciating asset with mortgage interest write-offs. You’ll pay yourself rent instead of paying your landlord’s mortgage. When rates drop and values rise, you leverage that equity for the next house or an investment property.

The cost of fear is mathematical. While you debate, institutional money reads the same data and acts. They understand that 83 out of 85 years of housing appreciation isn’t a gamble.

Do it scared.

That buyer who walked away from $75,000 in savings? They’re still paying $4,500 a month in rent, watching property values climb while they wait for perfect conditions that will never come. Meanwhile, someone else bought that house and is building equity on their money.

Fear always has a price. Do it scared.