The Housing Chronicles Blog: The importance of buyer psychology

Friday, January 4, 2008

The importance of buyer psychology

I've always maintained that the housing market is different than the non-commercial sectors because of the importance of psychology: in other words, most investors in commercial real estate don't fall in love with their holdings (although I'm sure there are exceptions).

Writing last week in the L.A Times, syndicated columnist Kenneth Harney argues that 2008 will be the year that buyer psychology hits bottom and then starts to rebound:

Even through the grimmest headlines of 2007, there were a number of positive underlying economic forces propping up real estate. If those forces continue, they should help cut the time needed for the correction cycle to bottom out and the historically inevitable recovery cycle to begin...

Steady, moderate growth of jobs, economic expansion and low inflation also helped the national housing market in 2007 and could do the same in 2008. By the way, despite all the scary statistics, sales of existing and new homes in 2007 totaled an estimated 6.5 million, which would make it the fifth-largest sales year in U.S. real estate history...

At some point in every correction cycle, even in the most depressed markets, consumer psychology begins to change. People who need or want houses look around, see lower prices, affordable financing, and say: "Hey, this is a smart time to buy." The cycle has done its work.

It won't be everywhere, but that psychology should begin taking hold in a growing number of local markets next year.

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