Science has explained "buyers market"

I have been just as busy as most Realtors the past few months. New buyers are beginning to show up and appear ready to put there proverbial toe into the water. Rates have held at around 6% and that is about as good as they have been for the last year or so.

These new to the market folks are stunned to see the wide array of homes available to them. It is the housing version of sensory overload. Apparently, the total volumn of homes has reached a point that clients are once again asking for advice regarding the “best home for the money” on the market. This allows me to actually do my job.

Of course, I shouldn’t have to mention that as I sift through the multiple listing service, for sale by owner.com, and craigs list for properties that will meet my clients needs and stay within the range of their comfort level regarding price, I am still puzzled by how many homes are still priced above current market levels.

I understand that the market did an incredible 180 degree turn around over the last 9 months. If Katrina were a pregnant woman, we have delivered a brand new, shock to the system, it can’t be possible price adjustment to the housing market. Sellers that have not adjusted to the market are not really sellers – they are extra logs in the river of buying and selling houses. They are trying to be part of the market but they are the bottleneck to a smooth market.

And apparently, it is beyond their understanding.

Scientists have done research in the field of neuroeconomics. Neuroeconomics is the study of the psychology of finance. A recent article in the Washington Post shared the following.

Psychology of Money Drives Housing Market
Studies of the psychology of finance indicate that emotions play a huge role in decisions people make about money.

“There’s a whole emotional processing system that goes on in the brain that’s largely beyond our control,” says Kevin McCabe, a professor of economics, law, and neuroscience at George Mason University in Fairfax, Va. “The general view is that our emotions control us, and not vice versa.”

The study of neuroeconomics has illuminated a few key concepts: Many people will pass up sure profits for illusory ones. Some will turn down profits if they believe someone else is unfairly profiting more. Some will even refuse to sell if they believe they may come to regret it, because fear of future regret can be as powerful a motivator as money in the pocket today.

While little of this has been applied scientifically to real estate, it is easy to make the leap.

For instance, much research has been done on the concept of “loss aversion,” which shows that people tend to deny reality when something they own, such as a house, declines in value. Sellers maintain the asking price even at a level that makes no sense, economists say. Similarly, home sellers become attached to the prices their neighbors received at the top of the market rather than current prices, and they become reluctant to sell unless they get that higher price.

“There seems to be a psychological resistance to taking losses on the sale of a house,” says David Laibson, who teaches psychology and economics at Harvard University. “People think they’ll make money on it….That logic worked for a long time, and now anyone who bet on that logic is being burned.”

Source: The Washington Post, Kirstin Downey (11/04/2006)

My thanks to the many participants that allowed science to identify things that we Realtors have always known. I have to say that I read the report, jumped up and yelled outloud “AFFIRMATION BABY.” My wife came in the room to see what the ruckus was about. I showed her the article. I told her that there was a reason that the house in King Farm wouldn’t sell for a million. I stammered see, this is why the kids took the buyout and the relo company is stuck trying to sell their townhome in Germantown. It wasn’t my fault.

She just gave me that “look” and reminded me it was trash day tomorrow and I had better move the garbage cans out front before it gets too late.

The last I saw of the Post article, it was on the top of my newspapers in the recycle bin. Sometimes you can know reasons for actions, sometimes you can even have scientific reasons for actions…………but…….my understanding can only be shared with those wanting to sell.

They have to choose – become another log in the jam or take the smooth route to selling your home and doing what the smart folks are doing. What’s that you ask?
Why it’s the subject of the next post – buy up in a down market!

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