Shame, Regret, Real Estate

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As if the real-estate bubble itself didn’t teach us all about the role of human irrationality in what’s supposed to be a rational, economic transaction, the aftermath of the bubble is just as (if not more ) fraught.

From the NYT real estate section:

[T]hese days, buying a home is more psychologically demanding, fraught with conflict and confusion. Buyers and sellers need to know what they want to own, and commit to it — a challenging task for even the steeliest New Yorkers. Nothing is ever perfect, even when you have a big budget.

Confounding the emotional calculus is the fact that home prices could drop in the autumn — or not. It’s anybody’s guess.

These questions, psychologists say, have left a bewildered public even more unsure about what to do this summer, no matter what the economic indicators seem to point to. “The tipping point for many people is when they finally become exhausted by their emotions,” said Kathleen Gurney, the chief executive of the Financial Psychology Corporation in Miami, which studies the psychology of money management. “People will do anything to not regret how they feel.”

For many homeowners who bought at the top of the market, admitting what now seems to have been a mistake is painful, and could keep them from selling, even though the decision may be a smart one. “If they don’t sell, they don’t regret the loss,” Dr. Gurney said. Others don’t want to look dumber than their equally unfortunate friends.

Taking that loss is one hell of a hard thing to do for an owner. Committing to an apartment — knowing that it could be many years before it makes sense to sell — is one hell of a tough thing for buyers. The result: one slow and jittery real-estate market. At least here in New York.

HT: Brownstoner