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Money
Pits by
Doug French Once upon a time, a house was just the place you lived. But once The Maestro (a.k.a. Alan Greenspan) stepped on the monetary gas back in 2001 and 2002, houses went from being shelter and expenses to investment vehicles. “Working on the problem like a gorilla trying to do long division,” writes Bill Bonner and Lila Rajiva, “our plebe realized he’d got it all wrong. His house was not a dwelling at all, but an investment!” So that cozy little place we parked our car and rested our head, took off in price like a rocket, increasing 20 percent a year between 2002 and 2006 in some cities. And nothing makes you smarter than having your investments go up in value. After all, you were smart to buy the house in the first place. And since you live there, it’s worth more than any other house on the block. But when it comes to housing it’s not a man’s world. Women dominate housing decisions. There are not millions of guys out there pining for new homes. But, there are millions of women who are; the only ones who aren’t just moved into a new home. But even these women will be thinking about their next dream home within 30 days. The ones with good sense will wait a while before they say, “Honey, in our next house, I think we should get ...” Ah, but the bloom is off this housing-market rose. However, that doesn’t mean that significant other of yours has given up on moving into that next dream house. Unfortunately, unloading the current dream seems to be mission impossible. Anyone who watched his obnoxious neighbor, who used to live down the street, sell out for peak prices in 2005, can’t bear to accept a lower price than what that S.O.B. got. Even though you were never in his home, you know your house is better. Most working stiffs don’t trade assets for a living. They trade their time and talent for a paycheck. There are very few people mentally equipped to buy and sell investments profitably. And now houses are investments. One young professional asking my advice about whether he should sell his home at a loss and buy the new home his wife desired, wanted to make sure that any guy he was buying from was losing as much as he was. In her book, Overcoming 7 Deadly Sins of Trading, Ruth Barrons Roosevelt explains: “Pride is attaching your ego to the event or situation instead of simply attempting to do your best. When you bring your ego into trading, you lose twofold. You lose your money, and you lose your self-esteem.” There are plenty of people with homes for sale desperately hanging on to their self-esteem, at the expense of not being able to sell their house and find another more suitable one. Our brains are even wired to work against us when it comes to making rational decisions about selling something like a house. The hippocampus is a key portion of the reflexive brain, writes Jason Zweig in his book Your Money and Your Brain. It is packed with neurons that are called “place cells.” These neurons allow us to tell each feature of our surroundings apart from others. The reflexive brain responds favorably to things that are familiar. As Zweig points out, it is because “employees are constantly receiving stimulus about the companies they work for that 5 million U.S. investors have more than 60% of their retirement funds in their employer’s stock.” Investing in the company you work for “feels good.”
In an article asking whether homeownership may be bad for America, The Atlantic’s Clive Crook puts his finger on what homeownership really is – it makes employees less mobile. Indeed. People need reminding that homes aren’t investments. Investments pay you money every month. Homes are just the opposite – money pits. This article originally appeared in Liberty Watch Magazine. December 14, 2007 Doug French [send him mail] is executive vice president of a Nevada bank and associate editor for Liberty Watch Magazine. He received the Murray N. Rothbard Award from the Center for Libertarian Studies. Copyright © 2007 Doug French |
Imagine
the warm feelings we have and positive stimulus we receive from
our homes. This leads to what Ruth Barrons Roosevelt calls the endowment
effect, when “people demand more money to give up something
they already have than to buy it in the first place.” The endowment
effect, explains Roosevelt, is the result of loss aversion. “We
hate to lose what we already have or had.” So homeowners have
it in their heads that they had already made all that money on their
homes when prices peaked a couple years ago. In fact, their friendly
banker may have helped them spend that phantom gain by providing
more and more leverage.