Real Estate ‘Driven by Psychology’

Real Estate Driven by Psychology

What’s that? Real estate/home prices are driven by psychology?

In an article in the National Mortgage Professional Magazine e-newsletter posted March 30, 2016, professor Robert Shiller, the co-founder of the S&P/Case-Shiller Home Price Index, tells us what we appraisers have known for years and years and even decades… or longer!


The co-founder of the S&P/Case-Shiller Home Price Index has studied the latest round of home price increases and has concluded the upward activity is being fueled by emotional impulses rather than economic reality.

“These markets, I think, are substantially driven by psychology,” said Robert Shiller, a Yale economics professor, during an interview on the Fox News show “Cavuto: Coast to Coast.” “And the psychology now is a little bit hard to interpret. Note that the cities with the biggest price increases are successful tech, entrepreneurial cities in many cases. So maybe people kind of believe in these markets as their salvation or their hope.”

What’s that? Real estate/home prices are driven by psychology?

Not sure if Mr. Shiller is late to the party, or is just angling for more publicity for the Index.

But ‘we’ knew that back, in the 1980’s, when all heck was going on with commercial real estate, leading to the Savings and Loan Crisis.

We watched (and participated in) it in the early 2000’s when euphoria took hold in the run-up to the great worldwide financial collapse driven by the psychology of greed. Many of ‘us’ warned others about the eventual outcome. But virtually no one listened.

We are watching it again in many places around the country where low inventory and high demand, and fear, is escalating home prices again.

So psychology involved with real estate is really nothing new. However, like most everything in life, it runs in cycles.

Dave Towne
Dave Towne

Dave Towne

AGA, MNAA, Accredited Green Appraiser - Licensed in WA State since 2003. Dave Towne on

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12 Responses

  1. Benjamin Brossette on Facebook Benjamin Brossette on Facebook says:

    Value is based on economic behavior.

  2. Mike Ford Mike Ford says:

    Ben, Ya think?

    BLOG HOSTS get rid of the street sign capchas! They NEVER work and I usually just give up when I get them!


  3. Baggins - Kill your television Baggins - Kill your television says:

    Captcha is no big deal and it’s simple and works well for me. If it’s not working you just need to run a screen refresh and/or cookie clear. There are tools to identify and stop bots, but they rarely keep up with the evolving bot, as the bot is simply altered script and code with what is typically a singular goal and process requirement. I’ve been reading about honeypots working well at fooling bots, but that’s hardly a hands off automated solution. It’s important to run on mozilla. If you’re not using mozilla, you’re putting in too much work and getting too much exposure from simple net surfing. Roll out mozilla with classic view, classic buttons, adblock, flashblock, make bookmarks & top bar & bottom path bar visible, add on spell check, and auto drop cookies at end of the private session, for the simplest, most reliable, and most effective web surfing available. If you’re fooling around with mobile devices, that’s probably a primary reason there is tech confusion and captcha action fails. Mobile has always been, and always will be, inferior to PC desk use. It’s the half ass coding and illusionary proprietary aspect of development, which causes cross platform miscommunication of coding and script. But in other words, texting is for girls, and mobile is for the birds. Enjoy your life and remember that a phone is only supposed to be a phone. The psychology of mobile users is more chilling than that of purely emotional real estate buyers.  Mobile devices are antagonistic to the human condition and are best left at home. Go to work and work efficiently and effectively.  Otherwise turn off the tech and live life. It’s a damned shame about people having their faces buried in mini tech screens all day long. I remember the days not so long ago when staring at a tv all day was considered emotionally damaging rather than a popular activity. They sold it, you bought it. Obey. Consume. Smile for the camera because you are not in control of administrative privileges on a cellie. Cheers.

  4. Baggins - Kill your television Baggins - Kill your television says:

    One solution to pander to a mobile user causes havoc with pc users.  Now the edit button is missing.  Change it back please.  If you need a solution, consider a multi tiered captcha type option.  One for pc users like the existing captcha, and an alternate option for the mobile living zombie schnoozers.  Will wonders never cease?

  5. Avatar Tom D says:

    oh gee, when i was a real estate broker thinking of becoming an appraiser i would sit down with the buyer and do dollar adjustments for gla, site, condition, etc  i then bracketed the showings to find them that middle house.  we then did matched pairs & regression analysis to finally prove their offer.  oh, and i made them crawl into the crawl space and attic area.  teach them the proper way to value a house.  i wish we had more thought, and articles on saying that appraisers can’t be so precise in a market driven by the buyer’s hot buttons.  beautiful article, but somehow will be lost in our zillow mentality.

  6. Avatar Wayne says:

    This article reminds me of the old saying “Of all the things I have lost, I miss my mind the most!” I just received a VA assignment in a small Texas town. The purchase price is $280,000, no big deal. To you folks appraising in Orange County, CA or the Hamptons…I understand that this is chump change!

    The property taxes for this home are $7,804.16. Nothing unusual as there are no special assessments or HOA fees. This is a retired veteran buying the home. This purchaser would need to put $709,469.09 in a jumbo CD earning 1.1% for a three year period just to pay the taxes on this house. How much would he need to pay the insurance, utilities, maintenance, groceries, insurance, etc. etc. This does not consider that he is paying “0” down with a 30 year loan! Maybe he has hit the lottery…maybe he has oil wells pumping…I do not know. I just cannot help but think that many people who are signing up for this type of deal are headed for disaster!  Be sure to purchase more stock in banks as they have all of this under control! (NOT)

    • Mike Ford Mike Ford says:

      Wayne, $280,000 is still a lot of money anywhere. Whats the killer on the case you cited are the property taxes!

      Those are the taxes you would pay for a $700,000 property in California…not a $280K property. You folks need to adopt a California style Proposition 13 Constitutional Amendment. It means that taxes are assessed at 1% of sale price plus any local voter approved special assessments. Limited to annual increases of not more than 2% of THAT first 1%. Typical tax rate here is 1.10% to 1.25% or original sale price.

      1. Texas would have to become a disclosure state (they should anyway) The only ones non disclosure helps is dishonest politicians.  You guys pay three times more in property taxes than you need to.

      2. A 1% base limit would have greatly increased price appreciation. Those payments you currently send to the tax assessors office above $2,800 (to $3,080 at 1.1%) should go into your pocket OR into a mortgage for a $680k to $800,000 property. Think about that for a bit! OWNERS get the benefit of appreciation that your tax assessors are getting now…and you have no ceiling in sight. Old folks can be forced out of houses just because tax payments become too high.

  7. Mike Ford Mike Ford says:

    How can Shiller get such a basic fundamental so right…and then turn around and completely misinterpret what it means with respect to high tech areas? The conclusion is unsupported. (Maybe high tech companies simply locate to better areas to begin with).

    What he has done, is prove once again that determining real estate market value as is customarily defined for lending purposes, cannot be performed accurately by software and over reliance on statistical data. The kind economists cant go to the bathroom without checking first.

    The constant push to replace experience with statistical “Big Data”  will eventually make all appraisers as bad at supporting value or analyzing real estate markets as economists already are.

    You know…the folks that cried bubble for over half a decade before there was any hint of one. The same economists that so accurately predict the stock market they are all multi millionaires. The same economists that fail to see the SAME policies and thinking that brought us the S&L crisis; & The Great (RE) Recession of 2009-10 are fast tracking FNMA and all the other GSEs into the next  real estate fueled economic collapse.


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Real Estate ‘Driven by Psychology’

by Dave Towne time to read: 1 min