Millions of homeowners out there are most likely asking the same thing—why is it taking so long for the price of my house to rise? Why, given that the crash was in 2008, are we still in a housing slump nearly three years later? Moreover, given all the good news we’re hearing about key indicators like the gross domestic product and consumer confidence levels, why is the price of my home not getting any of the love? There might be some unforeseen f forces at play, but many leading economists are saying that the reason the real estate market still remains sluggish is deceptively simple; that beyond all the data, all roads lead to one simple and irrevocable truth—human psychology.

The reluctance of the real estate market to rebound is largely grounded in how humans perceive and make sense of risk. Study upon study has been conducted along this line of inquiry and they all, despite methodology and setting, arrive at the same truth: that is, that the agony of loosing is far more potent than the warm fuzzies we get from winning. Take this question for example: if offered to play a game in which you won $15 if the coin I tossed was heads and lost $10 if it was tails, would you play? If you said no, you’d be in very good company. But in looking at the game itself, you’d soon realize that your decision doesn’t make much sense logically because statistically you’re more likely to walk away a winner.

But numbers and math don’t matter to us. What these kinds of experiments tell us is that when we think about the buying a home or condo, what stands out most to us is not the potential benefit of our investment, but rather the possible pitfalls of doing so. Even if the numbers show that the economy is rebounding and the real estate market is stabilizing, we simply do not see it. Stated in the fewest words possible, our decision to buy or not by a house is an irrational and emotional process and not—as many might believe—a logical one. Fear still runs deep in the real estate market; and until we can find a way to manage people’s perception of the risks involved in buying a home or condo, the prices are likely to remain stagnant.

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This is filed under National Markets.


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