The herd mentality in real estate is often funny at times. Experts pop up and spout their sage truths, and everybody seems to follow suit until a new prophet (or profit) arrives. So, in order to help our readers know just which direction the market is heading, I have created the Manausa Housing Herd Barometer which can be employed in any market, at any time, to determine what is going to be happening next.
Avoid The Housing Herd In Real Estate
As we observe in the graphic above, an extreme in any of the housing market cycles are caused by a sense of fatalism, whether negative or positive. At the top of the housing market, the herd is all buying because it knows home values can never come down. They have seen record price movements for months or even years, so the euphoria of the bull run gets those last resistant buyers to enter the market, thus signaling the final stampede that guarantees the herd is heading in the wrong direction.
The opposite is true at the bottom of the market. When there is no sign of hope and everybody just "knows" that the good 'ol days of the housing market will never return, we see all media and "experts" decry that a "new age of real estate" has dawned and values are forever ruined. This is when the herd of reluctant home sellers who have been holding on to their high asking prices finally throw in the towel. Home values plummet as the herd acknowledges that there is no longer any great value in owning real estate, thus telling us that again the herd is heading down the wrong path.
Using The Manausa Housing Herd Barometer
The great thing about real estate as an investment, versus all the other different ways one can choose to invest money, is that to some degree we all have some experience and knowledge in the housing market. You most likely live in a house today, whether renting or buying, and you most likely have lived in one in the past.
Most people do not have this kind of intimate insight into the stock market or bond market. When they invest their money in these other ventures, they ultimately have to put a lot of faith and trust in some adviser. Fortunately, this is not nearly the case in real estate.
We can use our local knowledge to make smart buying and selling decision in real estate. We can also use the Manausa Housing Herd Barometer to assist us in market timing. How so? Just talk to enough friends and family members about buying a home and see what the general consensus seems to be.
Now take that consensus and apply it to the model above and you will know which way the herd is heading ... and you can head in the other direction!
Joe Manausa, MBA is a 26 year veteran of real estate brokerage in Tallahassee, Florida and has owned and managed his own company since 1992. He is a daily blogger with content that focuses on real estate analytics and providing his clients with a tactical advantage in today's challenging market.