Are you a Don Quixote or Hamlet of Housing?

Reading housing bull blogs and reading housing bubble blogs presents an interesting insight into the psychology of the current housing market. Most folks are moderate regarding the housing situation meaning they want to purchase but are fundamentally torn apart because they realize prices are just too expensive. These people understand that in order to be wealthy one must own some sort of real estate. Renting unfortunately is not a long-term strategy to success; however over paying is a guarantee of struggling both mentally and economically in a declining market. Just imagine buying a home at peak price only to see your home lose $100,000 or $200,000 in a matter of a few short years; think this isn’t possible? I’ll give you an example of an area in Southern California later in the article to show how this is possible and occurring.

Don Quixotes of Housing

So back to the topic of the dual psychology of the housing market. We have the interesting phenomenon of the Don Quixotes and Hamlets of housing. Don Quixote is exhubrant, one-dimensional, dogmatic, and totally immersed in his vision of the world. Even if reality is otherwise, Don Quixote is adamant about his belief and he is a person of action. These folks are your typical perma-housing bulls. Even if the Walls of Jericho are crumbling they are blissfully happy chanting their mantra of year-on-year appreciation. Don’t underestimate the Quixote’s of the market, they take action and do not sit on the sidelines. They practice the philosophy of shoot, fire, aim. These people have kept the market afloat in times of economic nonsense. The subprime market is overflowing with these people. The history of action, the history of decision making belongs to the Don Quixotes.

Hamlets of Housing

Then we have the Hamlets of housing; the over-analytic and multi-dimensional folks that examine every nugget of the market. They spew data as if water falls came out of their mouths. Each housing head that has a comment is quickly refuted with thorough data and is usually left speechless. They provide soliloquies on the nature of housing and what has fueled the bubble as if Socrates was their mentor. Yet many of these folks are stuck in the analysis paralysis stage. They believe so much in their data and are driven by analysis that it is highly unlikely that they will ever buy, even if prices tumble as they will. These folks will ponder housing as a life and death matter and fail to realize that time is also a key ingredient in making successful business decisions. At times these folks are criticized for sitting on the fence and never making a move; and there is some truth in this. Unfortunately, not taking action is just as dangerous as making rash decisions. They follow the mantra of aim, aim, and well what does the meaning of “aim” mean anyways?

The Two Polarize the Market

These two different characters have incredibly polarized the markets; their extreme action on the housing market has created a place where moderates cannot and will not invest. And those that do take the plunge find themselves questioning their decision since housing has become such an expensive proposition. When two forces with dogmatic views push on a market as necessary as housing, there can only be one outcome and that is what we are seeing. Yet the tide has shifted; even looking at the hits on housing bubble pages has increased in the last few months. I noticed people landing on my page searching for “housing crash 2007”, “housing market decline”, “real estate bust”, and “why is housing going down 2007” and these searches have replaced more optimistic queries such as “real estate investing” and “real estate boom.” What we have left is a market were prices went so out of control that exotic financing products needed to be introduced into the market like Quixotes battle with the windmills.

Orange County Drops $42,000 in 1 Month

Reality and perception changes at the margins. Most moderate housing followers expected the current state of the housing market, this is no surprise. It comes as no shock then that last month in Orange County median price dropped $42,000 in one-month as reported by DataQuick. Keep in mind that this is approximately the national family median income and a large metro area has decreased this amount in one month. When prices go up as they have they can go down just as quickly; this is based on the fact that leverage is a double-edged sword. When things are good they are extra good; when things go bad, well we can picture Hamlet pondering life with a skull in his left hand.

What Does this Mean?

For the past two months the rhetoric has now changed in the mainstream media. I’ve noticed that these are the following words that you are seeing:

Stalemate
Stalling
Waiting
Holding-Firm

The Hamlets and the Quixotes are waging a sitting war while the moderate middle is playing a different game; REOs, short-sales, and banks trying to unload property from sellers that can no longer afford to play this game. Many of the Quixotes believe they will get peak prices because in their reality they can do no wrong, the one-dimensional belief system will keep a stranglehold on them until they are forced by an invisible hand to take further action. The Hamlets see that blood is beginning to spill on the streets only reinforcing their belief that housing is a bad investment decision. But the majority of people looking to buy in the middle ground will patiently wait and purchase when the time is right both economically and mentally; they need to have the analytical skills of a Hamlet but must be ready to swing the sword quickly as a Quixote when the time is right.