The Monkey See, Monkey Do Market(Peer pressure doesn’t end in high school.)
Even major decisions such as buying or selling a house seem to be influenced by your peers.
As the real estate market shifts from a buyer’s to a seller’s, back to a buyer’s over the years, one does not want to get caught jumping into the market with no paddle, sort of speak. If you buy or sell at the wrong time, you could be drowning in extra bills and your own self pity.
Los Angeles Times writer, Diane Wedner, explains how buyers and sellers are looking to their neighbors and vice versa before jumping in to any market, in her article, “Meet the flockers,” which was published in the November 5, 2006 edition.
Music buffs know that the thing to have right now is an iPod, so they go out and buy one. Those involved with the real estate industry know that the market is enduring a downturn, buyers wait and sellers hold out. The mentality of these two groups is similar although the settings and magnitude are different.
“Behavioral economists — experts who study what consumers do and follow the economic impact of group behavior — say that those involved in real estate are not immune to the same pressures and need for conformity as, say, high school students sporting pompadours in the '50s, love beads in the '60s and platform shoes in the '70s.”
People do not like to feel out of place. Now, the differences between wearing bagging jeans or skinny jeans and buying or selling real estate have alternatives ramifications, but the idea is the same. It feels better to do what everyone is doing that is happy or successful.
It’s not the actual event that causes trends or people to conform to doing something others are doing. Wedner uses the interesting analogy of the gold rush.
“The frantic migration West wasn't caused by hordes finding riches but by the popular belief that riches could be found. In fact, most who came in search of them never struck it rich.”
Once the masses believe something is a solid idea, nothing short of a bomb can force them to resist it, especially if it offer the potential to become rich, and not to mention, quick. “Robert Shiller, the Yale University economist who predicted the 2000 stock market collapse in his book ‘Irrational Exuberance,’ says the recent real estate boom replaced the ‘90s stock market boom, with the same level of buyer and seller euphoria. Lessons learned from the tech-bubble bust were ignored. But real estate elation, too, inevitably faded, and fear now drives people's actions instead.”
No one wants to be the first on the block to lower their price or the first to buy a property. If one homeowner lowers the price, others will lower it more, thus forcing the first person to lower the price again and cause a chain reaction. It is also conceding what was once possible. Sellers in the current market are admitting that they either made a mistake or are desperate and need to sell at a lower price.
“It's in real estate, psychiatrists and economists say that interesting psychological dynamics come into play. Terms such as ‘denial’ and ‘loss aversion’ begin to fill the notebooks of industry watchers and shrinks alike.” This may be a significant reason as to why there are drastic “booms” and “crashes” in the market industries. Too many people conform to one idea that it ruptures the market’s balance and lands on one side when it is not designed to do so.
Back to Articles | 
