When Does Perception Trump Reality?
Housing prices have dumped significantly especially in the previously overheated boom markets. In a recent post (Case-Shiller Housing Price Index Continues to Plummet), we highlighted the severe drops that have been seen in the highest flying boom markets of yesterday. Amongst the top losers, Phoenix, Las Vegas, San Francisco, Los Angeles, and San Diego all whom saw year over year declines (according to the Case-Shiller housing price index report) of more than 25%.
Is this rational? Was the run-up of equally proportional numbers rational? From euphoria to dire straights, we have numbers, reality, and the human mind to sort it all out ... reality creating perception or perception creating reality?
Whichever camp you find yourself in, this is our reality and right now our reality is very grim.
posted by PropertyQwest.com @ 8:45 PM
3 Comments
3 Comments:
I recently came across your blog and have been reading along. I thought I would leave my first comment. I don't know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.
Betty
http://www.my-foreclosures.info
Markets are nothing but human psychology in action. Value is not an intrinsic property of anything, it's a human/psychological construct. So the perception-reality argument is irrelevant IMO.
Marinite - Thank you for taking the time to write such a thought provoking comment.
"Markets are nothing but human psychology in action." - Agreed.
"Value is not an intrinsic property of anything, it's a human / psychological construct." - Agreed.
We can't argue with what you've said because at it's most basic form everything you've said is, in our opinion, correct.
As it relates to housing, when the market is going strong, increased value is perceived, people buy, inventories shrink, real housing prices increase. When the market tanks as it's doing so now, so does consumer confidence and our perception of value. Thus, in real terms, we buy less, are not willing to pay more, inventories increase, real housing prices drop.
At the height of the housing boom the perception for the overwhelming majority (Peter Schiff not included!) was that housing would continue endlessly rising. The underlying reality was that something was drastically different. Bit by bit, piece by piece, the market's foundation, unperceived by most, was falling apart while most in the real world were in bidding wars joyfully paying more, ecstatic just to get into the market, perceiving they made a great move.
This perception of never ending skyrocketing housing prices had a consequence. The consequence - the present day reality of a terrible housing market (to some, a return to fundamentals for others a devastating life-altering event).
As you've stated and we alluded to in our post, it's somewhat irrelevant what causes what. Whether it's the chicken or the egg, we don't get one without the other and we're stuck with both!
Please visit the Marinite at her blog home. It's well worth the trip and you'll enjoy your stay once you get there:
Marin Real Estate Bubble Blog
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