What does it take to get buyers back into the real estate market? A stampede, evidently.
Just as techies believe they have to own a smartphone to be considered culturally in step, home buyers and sellers hold out or take the realty plunge en masse as well. Either way, group-think is at the core of the behavior.
Behavioral economists -- experts who study what consumers do and follow the economic impact of group behavior -- say that the pressure to conform that, for example, high school students feel -- remember ubiquitous love beads in the '60s and platform shoes in the '70s? -- also takes hold among those who deal in real estate.
"People suddenly start wearing wide ties or narrow ones, even though it's not logical," says Walter Reich, a professor of psychiatry at George Washington University in Washington, D.C. "In real estate, there are pressures too; people don't want to feel out of step."
They also do not react to a trigger. The gold rush didn't happen because hordes of people with picks and pans struck it rich. Prospectors flocked West because they heard riches could be found. Most came back poorer for their efforts.
Nonetheless, when a global idea takes hold, it takes a tough cookie to buck the trend. And when get-rich-quick schemes gain traction, everyone wants a piece of it.
Remember the stock market euphoria of the '90s, followed by the spectacular crash a decade ago? In his book "Irrational Exuberance," Yale University economist Robert Shiller predicted that financial cataclysm (not that everyone listened). Real estate euphoria replaced the stock boom, he said, and everyone, no matter their circumstances, had to buy a house. How quickly everyone seemed to forget the lessons learned from Silicon Valley.
Today, following the bitter taste of foreclosures and a collapsed economy, fear is the emotion driving real estate decisions. Few people, it seems, want to be the first to jump-start a buying trend, despite low interest rates and buyer-assistance programs. And as we've seen, this behavior has a much bigger impact on the economy than consumers wringing their hands over whether to buy a Kindle or an iPad.
Real estate, psychiatrists and economists say that when stampede mentality takes hold, buyers and sellers succumb to their neighbors' advice instead of tuning into, well, Robert Shiller. That's when buyers purchase homes they can't afford and become lemmings, falling off the cliff. Their big relief -- for a while, anyway -- is that others are in walking in their same shoes. Misery shared, we've learned, is still misery, however.
If a history is our guide, the tide will turn again. When will the stampede toward home buying return? That's the million-dollar question (reduced to $500,000 in the current economy). Regardless the cause of real estate cycles, people always will buy and sell, says Ted Goertzel, a sociology professor at Rutgers University. Why? Because everyone needs a roof over their head. The market goes down, but historically it always goes up again.
It just takes those first brave souls to rekindle a trend. Come out, come out, wherever you are.
Grow your nest-egg.View Course »