Getting Out of the Heard Mentality
May 22nd, 2008 categories: Chico Real Estate
“I Heard on the news that the Real Estate Market will continue to Decline, so I’m going to wait and see What Happens Before I Buy”
You know what I’m talking about. You’ve probably heard something similar to this from clients dozens of times in recent months. Or, you’ve heard it from friends and colleagues. It is the kind of attitude that frustrates markets and stagnates economies.
But, it works both ways. Think back, if you will, to the frenzied activity of just a few short years ago. Back then, when the real estate market was really cooking, the “buzz” was about enormous value gains and fortunes being made. These reports-stimulated by the media- helped to fuel the biggest real estate boom in history. Consumers were driven, despite rationality in many instances, to to jump in and buy because of what they had heard.
Consumers Act Out of Fear
OK. Sure. There are other emotions that drive behavior. Love, greed, anger, etc., I’m sure all play a role in human behavior and decision making. But, from my, perhaps cynical and non-clinical view on this issue, each can be broken down to a baseline sense of fear when talking about consumer behavior.
Look at it this way… When someone is willing to pay tens of thousands of dollars over any rational assessment of value for a home or piece of property, they are not doing it strictly because they love the white picket fence, or because they are angry with competitive buyers or the seller. They do it because they are fearful they are going to miss out on an opportunity someone else might get (OK. That’s kind of greedy).
The flip side is true in a softer, declining kind of market. People are afraid of the opposite- that they will pay too much. In both instances, fear is the primary emotion causing behavior and decision making. So, in a declining market, people tend to wait and see what the next guy is going to do.
Once enough brave people have recognized and acted on the opportunities created by the fearful, “wait and see” people, the cycle will begin again and the “wait and see” people will be chasing the market fearful that they will miss their BIG deal. And, so it goes.
People are Afraid of Looking Stupid
Nobody likes to look stupid. In a rising market- “Everybody’s buying houses and getting rich. Why aren’t you?” “You should have paid that extra 10 grand to get that house. Now, someone else has it!”
Or, in a declining market- “Why did you buy that house? Haven’t you heard that prices are going down even more?”
We may never actually hear these kinds of things, but somewhere in the back of our minds we feel that acting contrary to expected behavior will make us look stupid.
Following the Herd
Yes. Like it or not, in spite of the way we like to view our perceived independence and individualism, our sense of un
iqueness and self-worth, we do tend to do as other people do.
“My neighbor just bought a Hummer.” “I had better get me one of them too.” It doesn’t really seem to matter that gas is 4 bucks a gallon (see previous paragraph about looking stupid), or that you will never take it off road and parking it is nearly impossible. You just know that other people are doing it. Sadly, that is just the way we are. Well, not all of us. But, enough.
Now, this is probably good in many ways. We are social creatures and a certain social predictability is critical to the formation and stabilization of social constructs, including economies. But, it doesn’t mean that our behaviors are always rational or even in our best interest.
Think for Yourself
Break the heard mentality and break away from the herd. I know. It may feel counter-intuitive. But, don’t be afraid to buck the trends. The best opportunities are discovered when the herd is doing one thing and the brave do another.
Educate yourself. Get away from the 24 hour, round the clock news. I recently stepped back from my growing obsession with the back-and-forth channel flipping between CNN and MSNBC, and allowed myself only 30 minutes of TV news a day. I felt better. There are plenty of other resources from which to draw that don’t create the insidious sense of dread caused by constant news-drama.
Read my Blog. Or, better yet, sign up for my feed or email notifications. You don’t have to buy everything I write. But, I do try to provide informative, relevant information that you should find helpful.
Make your decisions for the right reasons. Don’t do anything, including buying or selling real estate, just because it seems to be the thing to do. If you want to get into the market, then do it. Quit waiting for the rest of the herd to tell you it’s OK. Think about investing as long term and don’t buy what you can’t afford. Get away from the “Heard Mentality” and make your move!
