Mood of the Market
By Tara-Nicholle Nelson
Bad-habit cessation is the holy grail of behavior-change specialists and self-help gurus alike. Many millions of dollars have been made and books bought by consumers on the hunt for the key to stop whatever self-destructive actions constitute their particular vice, from smoking to overeating to overspending and gambling.
But these are simply the behaviors on the extremely and obviously destructive end of the bad-behavior spectrum.
In almost every area of our lives, there’s something we could do differently or better to get closer to the results we want. Often, we learn these lessons and are motivated out of our bad behavior the hard way, as so many homeowners and mortgage consumers learned what not do to with respect to their real estate decisions by the collective spanking the housing market took in the recent recession. But our memories can be short, and the more subtle bad habits can be the hardest to break.
So even while the market seems to be giving off hints that it might be making a slow turn onto the path to recovery, I think now is precisely the right time to revisit some of the common homeowner behaviors that we should stop doing — now.
1. Trying to time the market. There is some core human psychological craving to chase after windfalls, no matter how risky or unlikely the chase, and to avoid losses at any costs. Perhaps it’s even a sign of a healthy dose of self-esteem that we each seem to feel entitled to avoid the natural ups and downs of the economic markets, including the real estate market.
When it comes to buying and selling homes, locking mortgage rates and the like, people who have zero financial credentials and can barely balance their checkbooks seem, for some strange reason, to believe that they can and should make moves timed to always sell at the top and buy and lock in their interest rates at the very bottom.
The problem is, the data overwhelmingly shows that other human tendencies and flawed logic flows make the vast majority of us really, really bad at timing the market — especially the housing market.
Think about it, at the top of the market, you see your neighbors achieve such high profits on their homes that you feel like a fool if you’re not in the game, and buy as much house as you can as soon as you can. At the bottom, you are afraid to buy a home that may still continue to decline in value after closing, so you sit right on that fence until prices come up — maybe even selling a home or walking away in a desire to cut your losses, locking them in in the process.
Bargain-hunting buyers who wait for the bottom tend to wait too long, until prices have already started to recover, when buying seems like it might be a good idea once again.
Think about it: The true market-beating strategy with any investment is to buy at or just before the bottom and to sell at the top, which, by definition, is when others are buying. But homes are nowhere near as liquid (easy to sell) as other investments, and they are not even pure investments. For most us, they’re also the place where we live!
I believe that we’ll make better real estate decisions around our homes when we make those decisions based on what is right for our lifestyles and our families and our personal finances at a given time (then optimize those decisions based on market dynamics), rather than trying to time the market for big profits and no losses.
2. Complaining. For such an affluent bunch (on average, relative to renters), homeowners sure do complain a lot. They complain about the market. They complain about real estate commissions. They complain about buyers and how aggressive they are. They complain about property taxes … heaters breaking down … the banks … this president … the last president … the president before that … and the list goes on.
They say that whatever we focus on grows. So, if we focus on our complaints, they will seem to get larger and larger, more and more important, crowding out all the things we should truly be grateful for, like the fact that a mortgage empowered us to buy the comfortable place in which we live, or the amazing tax advantages we’re getting by virtue of homeownership, or simply having a roof over our heads and having made it through the recession this intact.
Complaining is precisely how homeowners who planned to be in their homes for decades and still have the same jobs and incomes they always did wind themselves up into being frustrated with the down market and strategically defaulting on their mortgages, losing their homes and incurring myriad credit and even legal troubles when it really doesn’t make financial sense. (This is not to say that strategic defaults are never sensible, just that I’ve observed many that are not.)
3. Fixating on things beyond their control. You can’t make the banks grant your loan modification. You can’t make interest rates stay where you want them until you can wrangle a high-enough appraisal to refinance your home. You can’t make a buyer show up with a suitcase full of exactly enough cash to pay off your mortgage and slide you comfortably into your next home.
So stop fixating on these things.
Obsessing about things that we have no control over is a shortcut to fear, panic and chronic stress, all of which, in turn, lead to irrational decision-making. If you’re inclined to engage in these sorts of fixations, shift your focus to the things over which you do have some control, like:
- following up and making sure every “i” is dotted and every “t” crossed on your modification paperwork (even if that means sending the same documents in a dozen times);
- watching the sales prices of homes in your area for any seasonal spring upticks in sales prices that might boost the chances your refinance appraisal will come through; and
- staging, prepping, primping and pricing your property to lure in the right buyers and get it sold.
4. Looking for tricks and shortcuts to sound financial principles. A homeowner I know recently told me that he’d applied over and over for a loan modification (on a mortgage vastly outsized to what he can truly afford, by the way) and was frustrated by the repeated rejections he’d received. The specifics of the situation suggested to me that it was not that he failed to show a sufficient hardship, but more an indicator that the subprime-era mortgage was simply set up to fail because the home was more than his income would ever be able to sustainably support.
As I tried to advise this young man, he said in exasperation: “I know they just want me to say the right numbers, but no one will tell me what they are. I need an inside connection!”
As I see it, one of the worst impacts on the housing-consumer populace of the subprime era and late-night “get rich with real estate” infomercials has been the creation of the sense that it is acceptable, even savvy, to game the mortgage system to get your short-term real estate goals met, at any cost.
Sometimes, situations arise in which you may have to go to great lengths or leverage your agent or mortgage broker’s relationships or expertise to get your mortgage application approved or to get your loan mod application through the bowels of your lender’s loss mitigation maze.
But engaging in paperwork or document trickery with the specific intention to subvert the core financial standards and affordability principles that were once built into loan-qualifying guidelines has turned out to be more harmful than helpful, on net, to American homeowners.
Tara-Nicholle Nelson is author of “The Savvy Woman’s Homebuying Handbook” and “Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions.” Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.