THE PSYCHOLOGY OF CHANGING MARKET
June 13th, 2007
As a former psychology major, I have always been intrigued by the emotional diversity of the human mind. At times it seems to have a spirit or will, that serves as a great source of strength in helping us overcome adversity and fear. Other times it can appear weak and fragile leaving us confused and doubting our abilities to face life’s challenges.
Having transitioned from one career into another, I have had an opportunity to work with people who have overcome great odds to reach the pinnacle of success however, I have also witnessed some of these very talented people second guess their abilities when their respective market changed, even when the change was expected.
The same has happened with our market as many homeowners, investors and realtors alike find themselves questioning the degree and length of time this market will continue to adjust. Once confident, many of these “investors” who were either “banking” on the equity in their homes, or who overleveraged themselves with investment properties, not expecting the market to change so rapidly, are now growing more concerned about the prospects of recovery in this market. For many, their confidence may be shaken, but for those who take more of an analytical approach instead of one based on emotion, the market is actually performing as expected.
As one of ten writers of this column I am often asked to comment about various real estate related news articles and opinions that come across our TV screens or other forms of media and surprisingly, many of those asking the questions are the same ones who were very bullish in this market. Even more interestingly is how their behavior pattern is very similar to the “day traders” of the late 90’s and early 2000’s when making money in the stock market seemed as easy as “shooting fish in a barrel.” When their market turned, many of these investors who thought they cracked the code to riches, found themselves looking for answers to the sudden change in their market; sound familiar? To help you through this time, let me share with you some of the questions I have been receiving and my personal responses, but first let me explain to you the four cycles of the real estate market that I feel were clearly outlined by Maryann Mize of Charlotte State Bank in some of her presentations.
If you started in the quadrant of “Under Supply” you are essentially starting with the cycle that is ripe for growth and is poised for the beginning stages of development. Just as it says, there is an under supply of inventory in a variety of sectors of the real estate market. Following the quadrant of Under Supply is that of “Expansion” that is characterized by declining vacancy rates and new construction and growth. These two quadrants represent “Increasing Demand.” The third sector or quadrant is that of “Over Supply,” with increasing vacancy rates and inventory levels and the fourth is what is considered “Recession” that is characterized by further increasing vacancies and more completions in new construction. These last two quadrants are those of “decreasing demand” and it is between these last two quadrants that we find ourselves today.
The questions I receive most have to do with the type of buyers in the market. Some have heard the Europeans are coming here, while others claim they hear the investors are back in the market. Traditionally, the Central and South Americans have favored Miami for its Latin influence and nightlife, while the Irish and Brits prefer to invest in the Orlando area for the theme parks and the potential for year round rentals. What we are seeing primarily in our market is a diversity of “End Users” who are looking to purchase a home for personal use. Where we could pick up additional opportunities from the international market are from some European countries as well as Venezuela that are starting to see the signs of Socialism and are considering Florida as a safe haven for their real estate holdings. As for the investors, I beg to differ from the opinions of some, as I believe most are on the sidelines waiting for the opportunities on the horizon where there is a growing consensus that the fallout from the “sub prime” market is going to be felt, causing higher delinquency rates and foreclosures. Many feel this time will come in late summer and I am hearing that even the Wall Street investors who are looking at real estate are positioning themselves to take advantage of the great opportunities that will be at hand; and that brings us to the “mindset” of today’s investor.
Today’s investor is thinking very differently than those that were in the market two years ago. Much like the behavior of the “Day Trader,” those claiming to be “Real Estate Investors” a couple of years ago, where jumping in with high hopes the market would continue its meteoric rise due to low interest rates, affordability and the influx of baby boomers projected for years to come. The investor of today is banking on the vulnerability of market and is looking at opportunities “for a steal.” As a seller, this investor is not who you should be looking for; it is the “end user” who is more reasonable in their pursuit of a good deal.
Another question I am asked relates to the increasing inventory levels and the lack of sales in the market. For the eight years I have lived in Florida, January 10-15, regardless of the industry, has always been the beginning of our busiest season. With people looking for any glimmer of hope, we started to see signs of life with an “Up Tick” in sales at the end of the fourth quarter of 2006 and the beginning of 2007. Now the market seems to have hit a little bit of a trough again as the economic news has been volatile. Personally, I feel the increase in inventory levels is due to the optimism and anticipation of a busy season, and with the general public very uneasy about the economy and the inconsistencies over the past few weeks in the stock market, many people are putting their properties on the market hoping to capture any momentum there is. As a result, instead of inventory levels going down, they have increased and home prices are continuing to adjust.
Recently I was watching T. Harv Eker who wrote the best seller, “Secrets of the Millionaire Mind,” in which he said, “It is how you train your mind to think that will insure your success.” Are you of the mindset to protect what you have or is it to “Win” by taking chances and creating opportunities for success? Previously, I referenced Robert Kiyosaki, author of “Rich Dad, Poor Dad,” who said years ago, “When everyone starts to get into the market, that is the time to get out, and when everyone is trying to get out of the market, that is the time to get in.” It is a contrary way of thinking, but now that you understand our market, you can either choose to let the market dictate circumstances for you or you can look at all the opportunities within the market and program your mind to take advantage of those that will benefit you the most, regardless of whether you are a buyer (end user), seller or investor. What’s the secret? Think more analytically and less emotionally and then consider if this is a market in despair or one full of opportunity?
The rich make money in good times, but they make even more money in the challenging times, according to Kiyosaki. The question you need to ask yourself is how you are going to train your mind to take full advantage of the opportunities this market will bring.
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