Commitment Bias is Building Another Real Estate Bubble, Which is Cool.

Take it from someone who has terrible timing, but is pretty good at learning from his mistakes — the real estate market is in another bubble. Prices are back up, with recent reports that some Seattle locations are actually selling for above their pre-bubble/2007 highs.

Yet… wages are more stagnant than ever.

I bought a house in June 2007, which turned out to be the absolute pinnacle of the market. We were trying to live the American Dream to own a home. It seemed brilliant (though not that original) to get in on a starter home, build some quick equity, and then sell it in 5-7 years for a tidy profit. That’s what everyone was doing, and as you know, if everyone is doing it, you should too, stupid.


Something to keep in mind when evaluating features of a new home; the more cars you can fit in the garage, the better human being you are. In 2007 you could have gotten pre-approval on the loan for this, even without proof of income! Photo: d0ug&r0byn

Buy high and sell low – that’s my motto.

Our home started losing “value” almost overnight and by the time I refinanced in 2010, it had lost over 10% of its value in less than 3 years. I remember the idiot at the mortgage broker’s office congratulated me because it had “only” lost that much. He lacked some social sensitivity as you might imagine, but on the bright side, he was really happy about that commission!

Fast forward to today. The house is in a pretty cool neighborhood, and Zillow says it’s worth more than we paid for it!

Via divorce, I’m no longer an owner of this home and that is totally cool with me.

That’s the thing though; we are all handcuffed to this real estate market in some form or another. My ex was able to be remove me from the deed because it had gained enough value for her to refinance it again. If it had stayed depressed, I would still be on the deed.

If it’s not us directly that are personally tied to real estate, we probably have a parent or family member that has all of their savings tied up in their home. Or we’re a renter and the bubble is also causing the rental market to inflate.

I like this blogger, James Altucher. He isn’t afraid to talk about his failures. He has said the blog post, Why I am never going to own a home again, is his most popular by a wide margin. It’s not because people agree with him, it’s that those that already own a home have commitment bias and people can’t stop themselves from reading something that makes them feel bad about themselves. They’ve already committed to this American Dream and deep down we all hate ourselves for it.

What’s my point you may be asking? I don’t really have one, except that I had this same (albeit unformed) opinion in 2007 when I was rushing into buying a house and I never said anything about it. So no I am. Part of me hopes I’m wrong, but that’s not the irrational part of me that wants to buy a house again.


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