Psychology of Homebuying: How Emotions Can Alter Life-Changing Decisions | WSJ Your Money Briefing

foreign this is the special edition of your money briefing for Friday April 28th I'm J.R Whalen for the Wall Street Journal welcome to the fifth and final episode of our special series under contract your guide to home buying today we're focusing on the psychology of buying a house there's just a certain warm feeling about being home you hear it all the time there's no place like home there's no place like home house [Music] when I think of home I think of a place where there's love overflowing in the Broadway classic The Wiz Diana Ross yearns for the feeling of the comfort and safety of home those emotions often Drive prospective home buyers through the process of Landing the house of their dreams but the wistful romance and the Nostalgia of Home can make them lose focus and pursue a new home for the wrong reason there's some sort of synonymous relationship between buying a home and sort of being the first rite of passage for a married couple or a couple starting out in life we feel the white picket fence the house at the yard the baby in its own Nursery is where we should be going when we're younger and starting out and sometimes that's not always the best decision over the past month we've talked a lot about how to buy a house and if there's one message underlying all those conversations it's that buying a home is a lot is creating a budget thumbing through dozens maybe hundreds of listings finding a real estate professional getting the best mortgage rate that can all help you land the house of your dreams but the home buying process really succeeds and fails in your head so how does psychology play a role in the home buying process I'm joined by Financial psychologist and author Dr Brad klontz who spent the last 20 years studying what we do around money so Brad this is one of the biggest expenses someone will take on in their lives and as we've heard in the previous episodes in our series it requires meticulous planning what causes people to often enter the home buying process with less than a sharp mind well first of all we're wired to do it all wrong so when we see a group of people doing one thing we have a panic response a survival response so we're very very inspired to do the same thing whether it's good or bad when it comes to finances and then add on that our own individual Financial psychology that we got from our parents from our grandparents we develop beliefs around money which in our studies we call Money scripts and these beliefs have a profound impact on our spending decisions and basically all aspects of our relationship with money and these beliefs we also inherit have to do with home ownership so what did your parents teach you what did they tell you about whether you should own a home or not own a home and because these things have a profound impact on us and they can be pass down through the generation so I'd be curious about what your grandparents thought about home ownership because these beliefs will set you up emotionally to decide whether you're doing the right thing in life around money or you're not or you're missing out based on those beliefs on those early messages we get around home ownership we heard in last week's episode that people sometimes enter the housing market at the wrong time how does psychology work into that well one of the things that happens in just about every area of investing or purchasing decisions is fomo fear of missing out this is hardwired into our brains we saw this back in 2008 where people were doing what in retrospect seem like crazy behaviors they were doing all sorts of things that in normal times you wouldn't even consider doing because they saw other people buying homes we saw this happen with cryptocurrency too where all of a sudden people are engaging in these behaviors that didn't make a lot of sense and it comes down to our wiring to our ancestors being left behind meant that you were going to die so essentially if the tribe is moving in One Direction and you're standing still you got picked off by a predator or by an enemy from another tribe and so it's really really difficult to sit still and to think rationally when two or three of our friends are buying homes we start to feel like we're being left behind and it creates this existential anxiety and as I said it feels like from your brain from your emotional level it feels like I'm going to die if I keep renting which sounds ridiculous but that's what happens at that deep emotional level so what can people do to break free of the grip that fomo and other psychological hurdles are placing on their ability to think rationally in this home buying process well when it comes to all of our financial decisions my best advice is for you not to trust your instincts to just accept the idea that we're all kind of crazy when it comes to money and so having some curiosity about whatever it is if you have a sudden desire or you feel this urgent need to buy a home you want to engage your prefrontal cortex because what's happening is it's emotional you're seeing this happen around you and interest rates are going up I'm starting to get anxious should I buy now because they're going to go up even more take some time to self-reflect on what's happening because when we become emotionally charged we become rationally challenged and the more emotionally charged we are the more likely we are to make a mistake so once you've done that it's really important to get an objective analysis to help you decide whether this is a good financial decision so bring in someone who isn't as emotionally charged who isn't as tied into your buying decision oh bringing somebody completely from the outside who's not with you in this home buying Journey exactly it does help to have somebody who also isn't necessarily getting a commission for the sale but find somebody who's objective to look at like for example how long are you going to own the home is it a good time to buy now or is it not quite often whether it's a good time to buy or not has more to do with our individual financial planning goals than it does with what's happening in the market which is always going up or going down when we can't predict the future and then exam in your beliefs what is your psychology around home ownership in general like what are your beliefs like some people have beliefs that well homes never lose value or real estate always goes up and historically you might be correct but that does not mean that it is the right time for you to buy so what's it like for home buyers who have to deal with these emotional hurdles on top of everything else buying a home requires lots of brain power but it's got to be the right brain power letting the emotional side of your brain call too many of the shots can get in the way while you're dealing with all the numbers all the phone calls all the inspections and everything moving at a frenetic Pace as you compete with other buyers 44 year old Aseem geneja had to navigate that Journey when he and his wife bought a home in Massachusetts frankly I wish there was like a crystal ball for event to buy and I wish I had known then at that point of Time how the Market's gonna go up or down or if the interest rates are going to go up or down you make one of the biggest investments in your life and you don't really have a lot of specific data customized for you that can help you come up with the decision I wish I had known this at that point of time tell me about the mindset and the emotions that you and your wife were dealing with when you were in the buying process yeah our mindset was you look at a house as an example and then you really like it and you want to make an offer but by the time you come up with a decision to make an offer say in the next 24 hours the seller says they've already accepted an offer so the mindset is a lot of emotional up and down you want to find the right place for yourself for your family to grow in and to live in and you get like a few hours to make a decision and that's not easy right you have a checklist you go through it you're like okay halves must-haves good to haves and then by the time you're done with the decision making you call the seller or your realtor and say look we are ready to make an offer and then they call the seller's realtor and they're like boops house is sold gone offer accepted and then you do it again next weekend you go to another open house or you schedule a showing specifically for yourself you like the house or you don't like the house if you don't like the house do it again it's a Non-Stop rinse and repeat process where you are falling short due to time maybe due to not paying the highest bid but you keep losing a lot of the time before you get lucky I guess dealing with the pressure to buy a home and managing all the numbers and decisions can throw prospective buyers off their game and leave them to making poor decisions wheelchair Tracy McLaughlin has been selling houses in California and Colorado for more than 20 years and she makes a point of educating buyers on the role that emotions and biases play as she's helping them through the process unlike any other asset that we possess if you own an apartment building where you have tenants or you've got a commercial building or you have a stock portfolio there's a very unique aspect to residential real estate in terms of it being an asset because it's where we make our memories our home is where we've made memories it's where we've celebrated occasions it's where we have had babies brought home so the attachment to that asset from an emotive standpoint supersedes any other asset that I'm aware of and for that reason tends to create stumbling blocks for people when they make decisions so where do you see this manifesting itself with the buyers that you're bringing around to see houses first time buyers they have their eyes wide open right this is such an exciting seminal time in their lives when they're buying their first home oftentimes they've just gotten married or made a commitment or they're thinking about a family and so there can be in my opinion a lack of real due diligence on the part of of younger buyers in terms of making the absolute best decision from both a lifestyle standpoint and an investment standpoint so while younger buyers unlike 20 years ago have access to all sorts of data and information they didn't used to have because of our iPhones and Zillow and all sorts of immediate data releases the reality is they still need a lot of coaching in terms of why house a is a better investment than house B even though house B can sometimes be more appealing and that's where you get into the nuances of this how does the lack of clear thinking cloud people's ability to think about options they might have instead of buying a house well I think we especially in the United States there's some sort of synonymous relationship between buying a home as sort of for being the first rite of passage for a married couple or a couple starting out in life as partners Etc you know there's a bit of a sensitivity to being a quote failure if you're renting versus owning now I think that has a lot to do with market dynamics and where we live but in general we feel the white picket fence the house with the yard the baby in its own Nursery is where we should be going when we're younger and starting out and sometimes that's not always the best decision if you get the best accountant available in your budget you sit down and you really do the math on taxes Insurance maintenance HOA fees all sorts of ancillary expenses gardening all sorts of things people don't anticipate it might sometimes be better to rent than to own especially if it's a short-term plan for a couple and there's probably strong feelings of elation and anticipation as they cross steps off their list towards securing a home but where do you suggest that people you know tap the brakes and take a dose of reality I often advise first-time home buyers actually any buyers whether you're a subsequent buyer but any first-time home buyer young buyer or if someone's moving into a new region in an area of what they're on familiar with to actually do the leg work and get in the car and drive over multiple times visit the neighborhood three times during the day what's the Morning Light like what's the afternoon like when does it actually get dark on which side of the street perhaps that's too much Northern Exposure for you and you actually don't want to live in the shade starting at two o'clock in the afternoon in the winter so checking out environmental concerns like how much sunlight if there's ambient noise there can be a lot of ambient bounce up noise off of roadways into places in the Hills that you would not anticipate and when does that noise come and go things like power lines those are huge inhibitors for resale value and oftentimes they can be in the view of a home and they'll actually end up compromising the overall Equity that you make when you go ahead and sell your home so I'm a big fan of driving over parking your car walking the neighborhood multiple times a day and talk to the neighbors the neighbors will tell you what they love about living there they'll also tell you about what they don't like about living there or if there's concerns about anybody or any kind of intrusive noise or dog that barks incessantly and nobody can make that stop these are questions you absolutely want to know what you're getting on the other side when your offer is accepted [Music] throughout the series we've learned that buying a home is a lot more than just relying on the old adage location location it requires knowing what you can afford before starting your search understanding the current housing market and knowing where to find the best mortgage rate and while understanding the blizzard of numbers is in itself a big hurdle having a clear mind and avoiding mistakes can clear the path to closing the deal and settling into your new home thanks for listening to episode 5 of under contract your guide to home buying and that's it for your money briefing this week we'll be back on Monday with more career and personal finance stories our producer is mohsin Ali this episode was mixed by Jess Fenton our supervising producer is Melanie Roy and our executive producer is Chris zinsley I'm your host J.R Whalen thanks for listening and have a great weekend [Music]

Channel: WSJ News

Views: 53,446

Keywords: psychology, homebuying, psychology of homebuying, emotions, life altering, decisions, personal finance, housing, housing market, buying a house, buyers remorse, there's no place like home, your money briefing, wsj, the wiz, diana ross, real estate, financial psychologist, planning, mortgage rates, cryptocurrency, fomo, when should i buy a home, homeowner, anxiety, emotional level, trust your instincts, research, need to buy a home, emotional decisions, interest rates, biases, pfin

Id: XSxNpp0xaEE

Length: 14min 1sec (841 seconds)

Published: Fri Apr 28 2023