S&D VI: Consumer Psychology

So far we've identified a few of the most significant factors affecting what we call the Demand Mix for real estate. This entire series focuses on real estate in general and does not address real estate investing. As such, we are looking only at the overall factors that are causing our hot real estate market. One such factor that often goes overlooked is consumer Psychology.

Psychology plays a massive role as our beliefs govern our actions. Some major things have changed in America in the last 5 or 10 years that have impacted our view of real estate in general. One such factor is the aspect of “ownership.” With the real estate boom came the ability for almost everyone to buy a house whereas before this was only available to a select few who had the significant down payment that was previously required. Before the boom, renting a house was normal and owning a house was a privilege. Today, owning a house has become a cultural norm and renting has almost become stigmatic.

What hasn't changed is that owning a home is still a vital key to the so-called American Dream. That is, people believe owning a home is a necessary part of the socio-economic culture – it's a goal to achieve no matter who you are or what you do for a living. What has changed, however, is the way we view real estate in general, especially when foiled upon stocks.

Before the stock market debacle of the year 2000, owning a home was psychologically “enough” for most people – they had achieved the dream and benefited from the tax deduction. Back then owning stock was the coolest thing in America – I remember when every friend I know was buying tech stocks of companies they knew nothing about – I was even one of those people! But as stock prices tumbled and both material and psychological wealth deteriorated, “owning stock” became less of a good thing, especially when the market tumble included massive elements of outright fraud and general distrust.

So now here we are 5 years later and many mom and pop consumers still don't even TRUST the stock market, which has forced them to look for new avenues to place their monies and grow wealth. And perhaps that's where the American Dream has changed. No longer is just “owning a home” enough – today, many Americans aim to own their own home AND some real estate too. They have found an alternative investment vehicle that has historically outperformed the stock market, is not generally believed to be corrupt or easily manipulated, is TANGIBLE and can even be used for personal enjoyment/recreational purposes.