"If I don't board the housing train now, I'm going to be left behind."

From the Voice of San Diego:

Real Estate Psych Spike

There are neat charts of data. There are colorful 3-D trend graphs. There are historic accounts and industry predictions. And then there's emotion.

That psychology is what many real estate analysts consider the "x-factor" -- the part of the market that can't be logically graphed and analyzed. It's hard to predict what people will do -- buyers and sellers alike -- especially in a market that finds itself in unparalleled uncertainty.

James Hughes, dean of the Edward J. Bloustein School of Planning and Public Policy at Rutgers University, said the psychological and emotional factors involved in real estate have gone in cycles, depending on whether the market was up or down. But the psychology is always there -- for richer, for poorer.

"We used to call recessions 'panics,'" he said. "We didn't have a fancy word to describe them. The switch goes from greed to fear to greed to fear."
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But it takes more than one person getting greedy or scared to turn the entire market. Herd mentality, even when rooted in economic reality, forms the foundation for most dramatic market shifts.

Hughes said the near-20-percent annual appreciation in home values in some places at the beginning of the decade was a huge motivator in getting people in the market. "There was the thought, 'If I don't board the housing train now, I'm going to be left behind,'" he said.

And now, homebuyers are a lot more cautious about getting on the train, said Alan Gin, professor of economics at the University of San Diego.

"It could conceivably work in the other direction," he said. "Buyers keep hearing this talk about a bubble, about housing prices slowing. Buyers might just decide that they're going to wait, possibly make lowball offers."
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That media coverage isn't entirely to blame for the frenzy surrounding housing prices, said Hughes of Rutgers University.

"There's a tendency right now to blame the messenger," Hughes said. "The media by itself is not the instigator."
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But London said with the absence of external shocks like widespread unemployment, a weak economy or a terrorist attack, the market's current ups-and-downs are due almost entirely -- 90 percent, he estimates -- to psychology.

"There's not as much real, substantive factors to stand on, so it's mostly about psychology right now," he said. "But that could change."
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Hughes, from Rutgers, said sellers need to get past their greed. He gave an example of a common temptation: If someone bought a condo unit 15 years ago for $200,000 and saw it peak at $600,000, that person is often reluctant to sell in a cooling market, even for $500,000.

"It depends on when they bought," he said. "The seller's got to realize after a while, 'I still made $300,000.' They'll gradually accept it."