Objective vs Subjective Home Buying – It IS All In Your Head

Posted by Jonathan J. Miller -Wednesday, March 16, 2011, 11:06 AM
3 Comments

I read a great NYT Op-Ed article this weekend by David Brooks called “The New Humanism:

Reason, which is trustworthy, is separate from the emotions, which are suspect. Society progresses to the extent that reason can suppress the passions.

This has created a distortion in our culture. We emphasize things that are rational and conscious and are inarticulate about the processes down below. We are really good at talking about material things but bad at talking about emotion.

There has been a groundswell of this type of reasoning from the brokerage community as of late – I wrote about “Analysis Paralysis“

I asked the question – does it come down to “ignorance is bliss” versus “knowledge is power”?”

I was reminded of the Op-ed piece when I read Fred Peters’ interesting take in Warburg Blog post It’s Not All In Your Head which basically addresses the paradox.

I think he is saying that we can’t be too dependent on one or the other approach and like mortgage lending, the pendulum has swung too far. The brokerage community, coming from a gatekeeper legacy which extolls “It’s always a good time to buy” versus the blogosphere mantra, a la Felix Salmon/Reuters “It’s never a good time to buy.”

There are two approaches to buying a home like any other material item:

Too much of either one is probably not a good thing.

During the housing boom, the mentality was all about the “subjective” approach (under the guise of objective) which was argued for in Fred’s post but during the recent downturn it has been all about “objective” which is something I make a living at – property valuation.

The problem with this “whether to buy” discussion is that the “objective” part so heavily relied on now is not given proper context. Just look at the the 5.5% increase in new home sales chart at the top – the headline doesn’t match the context – and how relevant is this to your local market? It’s not the fact that the data is wrong – it’s misapplied. Remember that the Case Shiller index reflects the market 5-6 months ago.

My analogy to this is watching prime time news. If you’re not a left or right leaning, it’s not considered good television. Well it’s the same thing with deciding whether or not to buy – better to rely on both approaches.

No wonder everyone is confused.

3 Responses to “Objective vs Subjective Home Buying – It IS All In Your Head”

1. Edd Gillespie says:

   March 16, 2011 at 3:11 PM

   Jonathan,

   I have no problem with the emotional side of real property transactions, it is appropriate, especially since we learned equity accumulation may be illusory from time to time. I just struggle mightily with quantifying it. The real rub for me comes when there is a deliberate bottle neck in the information and the primary source has a “dog on the hunt”, i.e. a commission.

   Appraisers have been really ineffective at convincing uninformed buyers that verified information and an objective opinion is available for a reasonable fee.
   • Jonathan J. Miller says:

     March 18, 2011 at 9:35 AM

     Agreed – thats because the emotional aspect of it is more interesting than the analytical aspect.
2. Marc Kushner says:

   March 21, 2011 at 12:18 PM

   Fascinating topic. My personal philosophy is that the “best time to buy” is when you have a legitimate need, and the necessary means. (This is true not only for housing, but for material goods in general.) Admittedly, it’s a pretty simple equation….but that’s part of the beauty of it.