Mood of the Market
Tara-Nicholle Nelson
Inman News
When I was growing up, you could hardly watch TV without seeing that drug prevention commercial with the intact-then-fried egg, and that voiceover intoning ominously, "This is your brain. This is your brain on drugs."
Some of the self-defeating (at best) and bizarre (at worst) real estate decision-making that ultimately created the recent foreclosure crisis was sufficiently illogical to make one equate us square-footage-obsessed, "Cribs"-gazing, McMansion-gobbling Americans with substance abusers.
And that poses the question: What does your brain look like on real estate?
In this month’s fifth anniversary issue of the New York Times’ T Magazine, writer Sarah Kershaw looks to the field of neuroeconomics for recession-era answers to the question of whether "shopping (will) ever feel good again?"
In the process, Kershaw states a statistic that is troubling when applied to shopping retail, but downright problematic if it is even a little bit applicable to real estate purchases: 95 percent of our purchase decisions take place in the deep subconscious, according to the neuroscientists and researchers of consumer decision-making.
Fortunately for us all, the legal and financial complexity of a real estate transaction makes it very difficult for all but the flushest of cash buyers to make a true impulse purchase. Nevertheless, I would take an educated guess that the average buyer’s choice of a home sparks a similar neuro-jumble of emotional responses and brain reactions as that elicited by the thought of buying a high-priced handbag or sports car — a literal mind-meld of exhilaration, worry, ecstasy and remorse.
Neuroeconomics is an interdisciplinary study of how the brain, emotions and psychology interact to impact our behavior as consumers. These researchers’ stock in trade is the dopamine rush that documents subjects’ desire and craving for Lexuses (Lexii?) and Manolos, and the sparks that fly in hedonistic brain centers at the prospect of a plum purchase.
According to Kershaw, researchers have revealed that the recession has not only impacted our wallets and our bank statements, but also our brains, and particularly our neurological responses when we are offered the chance to buy something beyond our means or luxurious, even if we can afford it.
Kershaw interviewed British neuropsychologist David Lewis, who did a post-recession study of 36 upper-crust consumers who retain strong purchasing power despite the economy. Measuring subjects’ brain responses to jewelry, luxury watches, couture clothing and autos, "Lewis saw positive emotional responses — excitement, arousal and high levels of attention — indicating that the desire for the products was still there, but he also witnessed an increase in stress that he had not seen in a study done before the recession.
This indicated to him that the prospect of actually purchasing the items was setting off negative feelings in … the prefrontal cortex and the insula."
My question is: How do these emotional brain responses influence our real estate decisions? What role did they play in the decisions that resulted in the overspending and over-debting and, eventually, oodles of foreclosures? I mean, if we get a rush from a $1,500 handbag, what sort of neural wingdings go off at the prospect of matchstick hardwood floors and arched doorways or — gasp — media rooms!?
Was that rush enough to collectively dash those nagging yet sensible thoughts of long-term affordability and sustainability, especially when there was deceptively cheap cash at the ready, flowing freely in the direction of whatever home’s columns or white picket fence or infinity pool caused the most delicious dopamine surge?
Perhaps.
To take the line of inquiry further, I’d like the neuroeconomics professors of the world to assess whether the collective neurological real estate rush during the easy-money subprime era has shifted or grown more complicated in the post-bubble era and, if so, to what effect?
My own hypothesis on the matter is threefold. I believe the recession, fears of job loss, the potential for further drops in value of their new home, and the ultimate economic fears of foreclosure and homelessness (also known as "bag lady syndrome") have complicated the pure joy and excitement buyers used to experience at the prospect of a new home with feelings of worry, dread and even stark, visceral fear.
For some buyers, this just minimizes the impact of the positive emotions on their homebuying — they can’t buy the biggest, best home they can see anymore, because neither the mortgage lending guidelines nor their internal, neuro-emotional reactions will let them. Now, their motivation is to make a smart homebuying decision rather than a sexy one.
For other buyers, the entire desire to buy or own a home at all has been totally shut down by the neurological association of buying an extravagant home with negative emotions, like disgust. As Stanford University psychologist James Gross so vividly explained in the Kershaw article, "a fairly large percentage of people now feel ‘that these kinds of purchases are really unacceptable morally.’ "
And for what my mind conceives of as the third group of buyers, the negative emotional associations of buying a home that is too big or too expensive has and will continue to evolve the kind of home they want. Recent data showed that American homes’ average square footage is no longer the largest in the world (we’ve fallen behind Australia).
My unwitting life guru, "Dog Whisperer" Cesar Millan, often says that to be a good pack leader (i.e., dog owner) you must understand our canine buddies’ behavior in the wild. Perhaps to be a good homebuyer or seller or even homeowners it would help to understand our own brains’ role in our real estate decisions.
Fortunately, it appears that they might evolve in our best interests without us even being aware.
Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Ask her a real estate question online or visit her Web site, www.rethinkrealestate.com.
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