Businessweek released their seminal housing issue led by Peter Coy’s cover story Buyer [And Seller] Beware [BW] and far ranging variety of topics that makes for a must read. Of course, with my photo included (I believe I can pass for an economist – note: telltale coffee mug), I swear I am unbiased in this declaration [wink].
Whats great about the article is that it delves into buyer and seller pyschology and affordability rather than throwing a whole bunch of sensational dated stats at you and screaming bubble in every paragraph.
Navigating the housing market is all about making good choices by focusing on how you think about housing:
Avoiding herd behavior – there is not always safety in numbers.
Loss aversion – some people are unable to be rational because they bought high to begin with.
Overconfidence – mistakenly assuming that you don’t need to consider a worst case scenario.
Looking backward – Sellers tend to be 6 months behind the market.
Castle thinking – Atleast consider renting as an option to purchase.
Keeping up with the Joneses – Conspicuous consumption can be a bad thing.
Tangibility fallacy — Housing is not always safer than stocks and bonds.
Businessweek economist Michael Mandell sees a long term net gain but slow-motion drop of about 10% over the next few years with some regions hit harder than others. What is particularly interesting to me is that the take-away from the dot-com market correction: a softening in market conditions should be taken as a return to normal, not a catastrophe.
Of course, some of this advice is easier said than done. Its like that Steve Martin joke about getting a million dollars and not paying taxes. “First” Martin declares, “get a million dollars.”