Other economists don't disagree that psychology affects markets; however, they believe much of the current real estate market has been driven by changing fundamentals that ultimately drive up the value of real estate. Sure psychology has built up some froth in some markets, but mostly, they claim, current real estate prices reflect a new reality.
Nonetheless, in recent months, more and more real estate buyers have moved to the sidelines and the media has noticed. 'When will the crash come,' every one is wondering, and our psychology has become even more negative. Yet, there is no proof a crash will come. Likewise, there is no proof a crash won't come. Once again, we're talking psychology.
Yet, a slowing real estate market isn't the only thing affecting consumer psychology right now. High energy prices have also had a negative effect on consumer psychology. Ironically, high energy prices spiked around the same time the real estate market started slowing more significantly.
Perhaps, high energy prices had something to do with the slowing real estate market?
Recently MarketWatch noted, "In terms of dollars and cents alone, I would bet that falling energy prices will have more of an impact on the economy than falling home prices. This is because we use energy constantly, and thus benefit when its cost is lower. Housing, on the other hand, is not something that is bought and sold daily like energy or any other commodity, although there's been a plethora of home-equity loans that have allowed a number of consumers to spend more than they earn."
Thus, might falling energy prices restore a little consumer confidence? If consumer confidence starts to build, might this not also affect the psychology of the real estate market?
Even more interesting, what if the current real estate slowdown pushes interest rates to their lowest levels in many months, just as consumer confidence over lower energy prices builds? Could this not rekindle consumer confidence in the real estate market?
While an energy driven boost in consumer confidence might not drive up home appreciation into double digit gains, it could possibly spark new gains in home values.
