Mood of the Market
In homebuying, this most often manifests when house hunters lose their minds and cut the purse strings entirely to secure a hot home in a hot market. This is the same mindset that has kept homeowners stuck in homes in depressed markets: Some unemployed and underemployed homeowners have even forgone great job offers in other areas, committed to spending what might be dozens of years in the very worst local economic markets, all to avoid short-selling the place and taking a loss.
I've seen people do very, very scary things out of loss aversion, from simply (but devastatingly) overextending themselves to buy homes they can't afford without endangering their financial well-being, to taking mortgages they knew would adjust problematically in 12 months. What's even more dysfunctional, though, is avoiding the "loss" of a target property by taking gifts and loans from relatives who you know upfront will be less than cheerful givers and who you know upfront will never let you hear the end of it.
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." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.
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