Psychologist-In-Chief

Irrespective of one’s political persuasion, it’s hard not to feel utterly swept up in the palpable atmosphere of extreme optimism that has largely characterized Barack Obama’s historic ascent into the Oval Office. This is one of those seminal instances in American history when you’ll never forget where you were the moment everything changed.

Although Americans still harbor a profound sense of apprehension over the economy, confidence in the new president’s ability to mend its deep fissures is extraordinarily high; with seven-in-ten Americans voicing confidence that his proposals will get the job done. As well, consumer confidence—which had fallen dramatically since September 2008—began to trend upward again in November; in concert, apparently, with Obama’s election. It has continued to rise steadily throughout the transition. These high expectations suggest the public has enough confidence in Obama’s intellect and bipartisan instincts to give him wide berth in crafting solutions to the intertwined housing, banking and credit crises.

“Confidence,” is definitely the watchword of the day. Psychology matters in the markets. Most economists believe the economy won’t reverse its downward trajectory until Americans regain confidence in their financial institutions. As much as any economic stimulus package can reverse the slide, Obama knows instinctively—just as Franklin Roosevelt did back in 1933—that overcoming fear and restoring confidence is the crucial first step to restoring America’s pre-eminence as an economic superpower.

Moreover, the experts predict the broader recovery won’t begin until money resumes flowing into the credit markets and the housing market stabilizes; which Obama has pledged as first priorities of his new administration. With congressional authority to allocate the next round of TARP funds already granted, the new president plans to immediately press the banks into doing much more to help homeowners avert foreclosure. He also intends to send a strong and unequivocal message to these rescued institutions that TARP dollars must flow freely into the hands of creditworthy borrowers. One can almost feel the bottom forming with Obama’s focus now firmly fixed on hastening it.

Today’s real estate market still favors buyers like no other in history. It has everything you could possibly hope for as a buyer: Median prices approaching half what they were during the boom, an unprecedented selection of homes in every price range and the lowest interest rates on record. Theoretically, the market should be percolating with activity. Instead, the opposite is true. Even though the opportunities to buy have never been better, buyer resolve is at an all-time low. They are allowing fear and negativity to dictate their next move—which is to do nothing.

Gary Keller, a real estate trend watcher, has made some shrewd observations about how today’s negative psychology causes buyers to act contrary to their best interests. “Their reluctance (to buy) is ironic,” Keller says, “since not so long ago buyers were incredibly excited about buying—and it was a sellers’ market. Prices were escalating and it was perhaps one of the most difficult times to find value; and yet people were buying like there was no tomorrow. Buyers were afraid of losing out by not buying, even though the advantage was all to the seller. Now a shift has occurred. Fear is still in the driver’s seat, but the tables are turned—the fear of paying too much seems to stop most buyers in their tracks and immobilizes them. When they should have been afraid of paying too much they weren’t; and now that they shouldn’t be afraid of paying too much, they are. It’s one of the great paradoxical moments of any market; and the herd instinct at its most pure.”

So in addition to being our new commander-in-chief, Obama must fulfill the role of psychologist-in-chief. He must instill confidence where fear has caused paralysis. In his inaugural address, even as he ticked off the list of tangible challenges that face his fledgling administration—including war on two fronts, a badly weakened economy, a health care system that fails most and schools that fail too many—he also cited that big intangible, fear.

“Less measureable, but no less profound, is a sapping of confidence across our land,” he said, “a nagging fear that America’s decline is inevitable; and that the next generation must lower its sights.”

He promptly debunked that notion with an upbeat reality check. “We remain the most prosperous, powerful nation on Earth,” he said. “Our workers are no less productive than when this crisis began. Our minds are no less inventive, our goods and services no less needed than they were last week or last month or last year. Our capacity remains undiminished. But our time of standing pat, of protecting narrow interests and putting off unpleasant decisions—that time has surely passed. Starting today, we must pick ourselves up, dust ourselves off and begin again the work of remaking America.”

Time waits for no one; and it appears Obama will waste none forging the shortest path to recovery. With his focus trained on resolving the housing crisis as a means to solving the larger crisis, serious homebuyers should heighten their determination to strike while the iron is still hot. Time may be running out on the lowest ebb of the best buyers’ market ever.

“Once the market settles or shows any sign of improvement,” Keller concludes, “Opportunities begin to slip away. The very moment sellers no longer have to make concessions, they won’t. And since there is almost always “group think” at play with respect to fence-sitting buyers, the pent-up demand will eventually break out and buyers may suddenly be faced with mounting competition for the best homes available.”

Share your thoughts, leave a comment!



Google Profile