Time to Get off the Fence?

Prices are down, but psychological factors may still keep buyers waiting.

Washington Post Staff Writer
Saturday, March 7, 2009; Page F01

It took four years and an unprecedented real estate downturn for Christopher Hertz to get off the fence and buy a house.

In the interim, the 32-year-old's search for the right property at the right price became nothing short of an obsession. He visited at least one open house a month. He researched the local market diligently, using an Excel spreadsheet to track the homes that interested him. He saw hundreds of places and made some offers, but all of them were rejected as too low.

So Hertz held on to the lease of his Dupont Circle apartment, a month-to-month deal he had signed in 2005 with the intention of staying for a few months.

Then, Hertz said, as the economic news grew increasingly dire last year and he expanded his search out of the District into the suburbs, he began seeing more opportunities. He got engaged. And last month, he and his fiancee, Colleen Fahey, made an offer on a three-bedroom, three-bath red-brick rambler in Bethesda. The owner, who received several offers, accepted the couple's bid. The two plan to move in April.

The overriding factor for making the commitment after such a long hunt? Price. The house was listed at $739,000, and Hertz's successful offer was $725,000. That was a good deal for a home so close to Metro and downtown Bethesda and for its size and condition, Hertz said.

"I did not feel comfortable buying, and I still had the opportunity that prices were going to keep falling," Hertz said, explaining why he spent so many years looking. "Well, I have been vindicated."

As home values continue their historic descent, understanding the psychology of home shoppers such as Hertz has become increasingly important for economists and housing analysts searching for a bottom. Buying a home has gotten much cheaper than during the years of the boom.

But just as speculative mania and a fear of losing out seemed to grip buyers during the housing bubble, the opposite appears to be occurring now amid the bust. Many would-be buyers fear getting caught in the downdraft and are waiting out the market in hopes of the best possible deal.

"People keep calling a bottom: for the stock market, for the housing market, it seems like every month there is a new bottom," said Rom Brafman, a behavioral psychologist and co-author of the book "Sway: The Irresistible Pull of Irrational Behavior."

Potential buyers think: "Why don't I just wait? Because maybe this house looks like a good deal, but maybe in a couple of months the nicer home down the street will be even cheaper."

The deteriorating economy has only complicated matters. Many potential buyers are concerned about making a purchase as big as a home when job uncertainty remains so great. For those like Hertz, who are willing to make a commitment, a psychological barrier must still be breached: the possibility that a home's value may decline. Housing experts said that an important factor for a turnaround will come when shoppers shift to viewing a property more as a dwelling and less as an investment.

"There is, in part, a redefinition of what a home is," said Nicolas Retsinas, director of the Joint Center for Housing Studies at Harvard University. "What we may be starting to see happening is people are weighing more heavily the use value of a particular home. And they are beginning to think, 'Okay, is this the place that I want -- not so much to buy and sell -- but is this the sort of place close to the things that I find important?' "

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