“Would it be accurate to say that markets are driven by two emotions: fear and greed?” If that is the case, then significant opportunities arise when things are negative.
Fear vs. Greed. When real estate prices suffer losses for a sustained period, individuals become fearful of further losses. However, being fearful leads to hesitation and hesitation based on emotion can become just as costly as being too greedy.
Let me explain …
History has taught us how greed dominated the stock market rise during the dotcom boom and how quickly that greed turned to fear after its bust, evidenced by people switching to low-risk, low-return investments.
Did we learn from history?
Since the stock market low on March 5, 2009 … the S&P 500 has rallied and produced a very respectable gain of approximately 50 percent. We saw people, out of emotional fear sell low but are now scrambling to buy, but at higher prices.
We also saw the price of new houses rise by 300% and the price of raw land rise by 1,000% during the real estate boom of the 1980′s. Then the bottom fell out in 1992. However, after hitting bottom, real estate prices increased to an annual rate of 25% and the price of land rose to an astounding 1,700%.
Can we learn from history and apply it to today’s real estate market?
Buying and selling decisions are more often motivated by people’s fear or greed rather than logical thinking and a study of history. Will logic help us find hidden value in a market that is presently down 30 to 50 percent?
According to the Commerce Department – New home sales were up for the fourth straight month – Orders for durable goods were up 5% last month – U.S. consumer spending was up in July – Confidence among U.S. consumers was higher than forecast in August
According to David Berson, chief economist for the PMI Group, residential construction and home sales led the way out of the previous seven recessions.
If we are too fearful to explore, are we missing an opportunity?
Investing genius Warren Buffet famously wrote, “be fearful when others are greedy and be greedy only when others are fearful.”
When it comes to buying a home that you intend to live in for at least 10 years, there is little to no risk of losing money on your investment, even if the market continues to drop or remains stagnant a little longer. » Read more