Why Do You Think Mortgage Interest Rates Are Increasing?

Mortgage Interest Rates

According to Freddie Mac’s latest Primary Mortgage Market Survey, the 30-year fixed rate mortgage interest rate recently jumped up to 3.94%. Interest rates had been hovering around 3.5% since June, and many are wondering why there has been such a significant increase so quickly.

Why did rates go up?
Whenever there is a presidential election, there is uncertainty in the markets as to who will win. One way that this is noticeable is through the actions of investors. As we get closer to the first Tuesday of November, many investors pull their funds from the more volatile and less predictive stock market and instead, choose to invest in Treasury Bonds.

When this happens, the interest rate on Treasury Bonds does not have to be as high to entice investors to buy them, so interest rates go down. Once the elections are over and a President has been elected, investors return to the stock market and other investments, leaving the Treasury to raise rates to make bonds more attractive again.

Simply put, the better the economy, the higher interest rates will go. For a more detailed explanation of the many factors that contribute to whether interest rates go up or down, you can follow this great link to Investopedia.

The Good News
Even though rates are closer to 4% than they have been in nearly 6 months, they are still slightly below where we started 2016, at 3.97%.

The great news is that even at 4%, rates are still significantly lower than they have been over the last 4 decades.

Any increase in interest rate will impact your monthly housing costs when you secure a mortgage to buy your home. A recent Wall Street Journal article points out that, “While still only roughly half the average over the past 45 years, according to Freddie Mac, the quick rise has lenders worried that home loans could become more expensive far sooner than anticipated.”

Tom Simons, a Senior Economist at Jefferies LLC, touched on another possible outcome for higher rates:

“First-time buyers look at the monthly total, at what they can afford, so if the mortgage is eaten up by a higher interest expense then there’s less left over for price, for the principal. Buyers will be shopping in a lower price bracket; thus demand could shift a bit.”

Key Take-Away

Interest rates are impacted by many factors, and even though they have increased recently, rates would have to reach 9.1% for renting to be cheaper than buying. Rates haven’t been that high since January of 1995, according to Freddie Mac.

Give us a call… we can and will help you find the perfect home in spite of this rate bump.  www.ForeSiteResidential.com

Thanks to Keeping Current Matters for their facts and narrative.

From Empty Nest to Full House… Multigenerational Families Are Back!

Multi-Generational Homes

Quick take-away…

Multigenerational households are making a comeback. While it is a shift from the more common nuclear home, these households might be the answer that many families are looking for as home prices continue to rise in response to a lack of housing inventory.

Multigenerational homes are coming back in a big way!

In the 1950s, about 21%, or 32.2 million Americans shared a roof with their grown children or parents. According to a recent Pew Research Center report, the number of multigenerational homes dropped to as low as 12% in 1980 but has shot back up to 19%, roughly 60.6 million people, as recently as 2014.

Multigenerational households typically occur when adult children (over the age of 25) either choose to, or need to, remain living in their parent’s home, and then have children of their own. These households also occur when grandparents join their adult children and grandchildren in their home.

According to the National Association of Realtors’ (NAR) 2016 Profile of Home Buyers and Sellers, 11% of home buyers purchased multigenerational homes last year. The top 3 reasons for purchasing this type of home were:

  • To take care of aging parents (19%)
  • Cost savings (18%, up from 15% last year)
  • Children over the age of 18 moving back home (14%, up from 11% last year)

Donna Butts, Executive Director of Generations United, points out that,

“As the face of America is changing, so are family structures. It shouldn’t be a taboo or looked down upon if grown children are living with their families or older adults are living with their grown children.”

For a long time, nuclear families (a couple and their dependent children) became the accepted norm, but John Graham, co-author of “Together Again: A Creative Guide to Successful Multigenerational Living,” says, “We’re getting back to the way human beings have always lived in – extended families.”

This shift can be attributed to several social changes over the decades. Growing racial and ethnic diversity in the U.S. population helps explain some of the rise in multigenerational living. The Asian and Hispanic populations are more likely to live in multigenerational family households and these two groups are growing rapidly.

Additionally, women are a bit more likely to live in multigenerational conditions than are their male counterparts (20% vs. 18%, respectively). Last but not least, basic economics.

Carmen Multhauf, co-author of the book “Generational Housing: Myth or Mastery for Real Estate,” brings to light the fact that rents and home prices have been skyrocketing in recent years. She says that, “The younger generations have not been able to save,” and often struggle to get good-paying jobs.

via KCM Crew

 

15 THINGS REALTORS WANT BUILDERS TO KNOW (2)

Hand With Magnifying Glass Over House

…continued

8. Baby Boomers
Realtors have noticed that many builders across the country are failing to connect with one of the largest group of buyers: baby boomers looking to downsize. They say there is a shortage of appropriate housing for this demographic, made up of older adults who prefer new, one-level construction to existing dwellings, says Baltimore-area Realtor Janice Kirkner. “Eighty-five percent of my 55-plus buyers prefer new construction because there is no maintenance and all common areas are maintained for them,” she says.

Hailey finds older buyers in Texas desire smaller new-construction one-story houses of 2,500 square feet or less that have the features and amenities they want. “They are looking for smaller single-story homes but they want the upgraded amenities that they feel they deserve. They also want that energy efficiency.”

9. Cultural Considerations
Builders often overlook the needs of foreign buyers, says Miami agent Andre Brown, who works for an Asian-owned company. Marketing materials should be available in a variety of languages depending on the area and bilingual staff or interpreters should be on hand to assist potential buyers.

“As the U.S. population becomes more culturally diverse I think it would be good for builders to research cultural preference, architecture and design to implement different aspects into their development,” says Brown. For instance, Richard says sales in his Asian-dominated market often hinge on a home’s favorable feng shui.

10. Closing the Deal
When it comes time to finalize a deal, there is one thing that Realtors agree on: Home buyers are turned off by overly forceful marketing tactics. They see deals falling through because of salespeople’s relentless calling and inflexible rules. For instance, it’s common practice for builders to tell buyers they must use a specific lender or title agency in order to get the pricing they want.

“The hard-sell on the builders preferred lender and title company is not appreciated by most agents,” says Hailey. “Many times before we assist a buyer in looking for homes, we have already had them get pre-approved with a lender outside of the builder’s preferred lender. Giving the consumer the ability to shop the loan is the right thing to do.”

Instead of “used car salesman tactics,” sales professionals should focus on a specific buyer’s preferences and motivators, adds Rice.

“They should break past old‐school sales tactics and dive into the psychology of what their buyer is looking for in their next home,” he says. “Their interests, wants, needs, and priorities are what a sales agent can search for when developing a relationship with a customer. Closing the sale will come as a result of a sensible process that adds value.”

Realtors can be indispensable in knowing what motivates a buyer. “Ask us what is the best approach to dealing with our buyer, we have a relationship with them and can recommend the best way to enter into negotiations, says Kirkner.

11. Contracts
Home buyers are sometimes shocked by builder’s contracts, Realtors say. They are put off by no option periods, non-refundable earnest money, and no hard close date. They are nervous when they see that builders giving themselves one to two years to complete the home and that they’re locked in to the contract no matter what the inspection shows.

Houston Realtor Kindi Scartaccini has had clients walk away from listings when they realize the deal would involve a builder’s contract. She recommends builder use a standard state form with just a few addendums. “Most realtors and their buyers love that because the contract is not so slighted toward the builder,” she says.

12. Working Together
Although Realtors help facilitate sales, they often feel as if they not a valued by builders. One of their biggest pet peeves is when a builder reaches out directly to their client. “If a buyer has an agent, call the agent not the buyer,” says Scartaccini.

In addition, they say, Realtors should be treated with the same respect as any other industry professional and have their calls returned promptly. Not answering a Realtor’s questions fast enough slows their own customer service. “In the age of the Amazon World, people are used to answers fast and we like to work that way as well,” says Fields.

On the flip side, builders should consider using a selling agent to market and sell their homes, says Benson. Think of Realtors as another subcontractor. “Builders won’t hire a tradesman with no experience but sometimes they think that their homes should sell themselves,” he says. “New homes don’t build themselves and they don’t sell themselves. Hire a professional to do the job.”

13. Realtors Fees
Many builders do not work hard enough to partner with local real estate agents, and few include a fee for a Realtor in their sales process. Some even try to cut them out of the deal or don’t return their calls.

“It’s frustrating to the Realtors, because they may spend many hours in educating the buyers through showing existing homes and general questions about the process of buying,” says DelVecchio, who is the exclusive marketing agent for a local builder Carina Homes, one of the only builders in her area that reaches out to Realtors with a “Realtor Referral Program” that provides a marketing fee of 3% of the build price.

“Our relationship is built on the premise that the builder’s best skills are with construction, but not marketing/sales. Our arrangement is that I get a marketing fee on every home Carina builds, which is about 10-12 per year,” says DelVecchio. “When there’s another Realtor involved in bringing a buyer to Carina, they also get paid a fee for the referral/assistance with the buyer from financing to closing.”

14.Closing
Realtors often see builders do everything right in their sales process but then drop the ball at the eleventh hour by not having the home completed at closing. Benson urges them to have everything ready at least a week before closing so that the builder and buyer can do a walkthrough and create a punchlist, which should be completed prior to closing. “It far more difficult to do repair or finish work in the home when the owner is living in the home, both for the builder and the homeowner,” says Benson.

“Builders need to learn to finish a house,” echoes Baldwin. “93, 97, 98 percent is not finished! A buyer is always going to focus on things not done,” he says. “In football, you can go 99 yards, but you don’t get any points unless you cross the goal line. There’s no A for effort.”

15. Follow Up
Repeat business and referrals are the lifeblood of any home building business. The best way to achieve them is through excellent service before, during, and after the sale, say Realtors.

Fields says many of her clients have heard warranty nightmares about lingering issues in new homes. “Not having a strong system in place will lead to lost referrals and angry customers,” she warns. “If there is a problem, builders need to take ownership of issues and repair them immediately.”

Manage buyers’ expectations with a follow-up service schedule for the first year. Benson recommends that builders check in with homeowners 90 days and 330 days after closing. “The first visit is to check in and make sure that all of the expectation of the homeowner have been met. The second visit is just prior to the end of the typical one-year warranty and goes a long way toward referrals and ensuring the builder can use his past homeowners as references,” he says.

These visits can be helpful for builders, too, as they are a chance to receive feedback on the design and livability of the home to alert them to the need for any changes in future homes, he adds.

Kudos
Most experienced real estate agents feel a kinship with their builder peers, especially after having weathered the down years of the Great Recession together. They understand the stress and challenges of making a living in the volatile U.S. housing industry.

“The shortage of labor and capital, increased land cost, excessive government regulation, elevated taxes and impact fees all make the job of being a builder and developer very difficult,” says Brown.

In spite of the challenges, Realtors say they are impressed with builders’ devotion to their craft. As Parker says, “Truly, they are doing a great job!”

Terrific article via Builder: Jennifer Goodman

15 THINGS REALTORS WANT BUILDERS TO KNOW

Realtor Builder Relationship
From dirty model homes to pushy salespeople, here are the top blunders that real estate agents see builders make.

Builder: Jennifer Goodman Home buyers rely on real estate agents for information about their local market that they can’t get anywhere else. In fact, real estate agents are home buyers’ most important source of information about new homes after the Internet. Last year, 33% of buyers learned about their new homes via a real estate agent.

Agents’ influence is not declining despite consumers’ use of the Web, and for most new home transactions, Americans still prefer to have a Realtor. Last year, 87% of buyers purchased their home through a real estate agent or broker—a share that has steadily increased from 69% in 2001, according to the National Association of Realtors.

In the course of helping their clients find the right house, these buyer agents meet a lot of builders and walk through an untold number of houses. This means they see where builders are making the grade and where they are slipping up. While many of them compliment builders for doing a great job even during tough economic conditions, they have also have strong opinions about what building pros could do better. Here are 15 of the top things they wish builders did differently.

1. New vs. Existing
Realtors say builders undermine sales by not playing up their biggest advantage: New homes are preferred to previously owned ones. They urge builders to market the value of a new home, which comes with warrantees, energy efficiency, and up-to-date design that older homes don’t have.

Buying a new home is especially ideal in markets where there’s a lack of inventory in certain price ranges, especially in entry level and move up categories, they say. In her Edmond, Okla., market, Realtor Jennifer Fields says new homes are highly sought after, especially in popular school districts. Builders in her area are working to design and customize homes that rival the price point of existing homes. “This makes new homes the obvious choice for many buyers,” she says.

In addition, new homes also offer flexibility on closing times, says Dana David, an Amherst, N.Y., real estate agent. “The hardest thing in this market is for my sellers to sell their home and also buy in a timely fashion,” she says. “Building a new home allows them to know where they are going before we list their existing home, and also gives me the ability to negotiate in time to rent back or for an extended close.”

Even though buyers prefer new, in the end it all comes down to price, says Susanna Madden, a Tampa RE/MAX agent. “If the HOAs and CDDs and add-ons are cost prohibitive, buyers will look at a ‘lovingly maintained’ resale that the seller has kept up.”

2. Model Homes
A model is often a prospect’s first impression of their future home, and it should entice them to visualize living there, says David Rice, founder of New Home Star, a Chicago-based real estate sales management firm. “It’s a hugely meaningful thing to be able to conceptualize the next chapter of your life,” he says.

Models need to be fully complete, says Houston agent Bill Baldwin, because ones that are not finished give a bad impression. Moreover, agents are dismayed to walk into a model with a client and find that it isn’t in working order or is dirty. “They should be equipped with everything including light bulbs, working sinks, and door knobs,” says Seattle-based Keller Williams agent Matt Parker. “And they should be cleaned every other week.”

3. Staging
Realtors say that no matter the style or size the model home, it should always be staged. It’s one of the most important steps to selling a home, says New York Realtor David.

“I’ve taken on expired listings of vacant model homes… once staged, buyers can picture themselves living in them and usually they sell in record time,” she says.

But many agents caution builders and their designers not to take staging too far because overdecorated models can look cluttered and confuse customers about what is standard and what is an upgrade. “Sometimes they are set up with lots of bells and whistles that don’t come standard, says Coldwell Banker agent Missy Stagers of San Antonio, Texas. “Make sure to clearly notate what is an upgrade.”

Models need to strike a middle ground between overdesigned and plain vanilla, says David. “It is hard for clients to walk into a fully loaded model home and picture it at the base level,” she says. “While I realize builders need to showcase their ‘best stuff,’ it would be great if there was a way to have a model with every upgrade, and also one available to see with just the basic offerings.”

Stagers has a good idea: “Offer some nice things in the basic package so everything is not an upgrade,” she says.

4. Price
The price of a new home can be a touchy subject between builders and buyer’s agents, who work to get the best deal for their clients. Realtors say they realize that builders need to make a profit, but “we do expect them to price their homes fairly. If you are always getting low ball offers, check where you stand price per foot with your competitors and other homes,” says Oklahoma agent Fields.

The biggest mistake builders make is that they price their homes based on their costs rather than on market conditions, says Garry Benson, managing broker at GPB Marketing Solutions in Chicago. “The market doesn’t care how much the builder had to spend to buy the land or build the home. They only care about the market value.”

Realtors don’t understand why the price of houses in new communities increases so quickly. “I feel as though every house that is built gets bigger, better, and more expensive,” says David. This is offputting to many of her clients who are young buyers or empty nesters on a budget. “It would be amazing if there was a builder that could supply us with reasonable, not overly upgraded homes that could appeal to not only first time homebuyers but also downsizers at an affordable price point,” she says.

When prices do rise, it’s important that builders honor quotes, says Plano, Texas, broker Melissa Hailey, who was shocked when a builder gave her clients a price and then wanted a $3,000 increase four days later when they sat down to sign the paperwork. Her buyers, who couldn’t afford the increase, were heartbroken.

5. Multiple Listing Service
The multiple listing service (MLS) is one of a Realtor’s most powerful tools, letting them know when new houses come on the market and allowing them to see recent sales. But many builders don’t provide enough information in their listings about variations and options, according to Albany, N.Y., broker Wayne Richard.

“If you consistently list on the MLS your to-be-built four-bedroom, 2.5-bath colonial you’ll get filtered out of the buyer (and Realtor) searching for a five bedroom, or a third garage, or an in-law suite,” he says. “You have to tell both buyers and Realtors that you can build those variations.”

6. Construction Updates
Once a house is under contract, builders must communicate with the Realtor about what is happening on the site, adds Richard. “Set construction milestones and expectations and advise them ahead of time: The hole is being dug tomorrow, the sticks start going up this week, the kitchen cabinets are being installed.”

Realtors often are reluctant to bring clients to a job site, says Richard, who worked for a public builder before becoming a Realtor. He thinks this is based on an unspoken fear that they will be embarrassed in front of customers because they don’t know much about the construction process. He urges builders to work with Realtors to educate them on how houses are built so that they are comfortable on site.

7. Buyer Preferences
Real estate agents, who work intimately with their clients sometimes over decades-long periods, often have a better idea than builders what buyers are looking for. Savvy builders use them to follow local statistics and trends, and to understand the demographics of the market. For instance, they can help with design and layout decisions before a house is built.

“Are you sure that theater room is going to go over with your clientele?” asks Fields. “You may think people want a theater room versus a four bedroom, but if you are selling in an area with good schools, four bedrooms may be far more important to the buyers.”

Failure to consult with a Realtor led to major problems for a developer in Christine DelVecchio’s Ithaca, N.Y., market. The spec homes in the development had a floor plan flaw that could have easily been averted: the first-floor master bedroom was located directly off the main entrance to the home and contained an oddly shaped angled wall that made bed placement challenging. “It was just badly designed for the flow of the entire house,” she recalls. In addition, the houses were not priced correctly for the lot size and location. An experienced Realtor could have researched homes in that area and suggested a more appealing lot size and floor plan, she points out.

“Only after the spec house was built did they reach out to the Realtor community after it had taken several years to sell lots/homes in that location,” she says. “They surely lost on their investment by this misstep.”

To be continued…

Ivy Zelman: ‘Now’ Is Best Time to Buy a House.

Ivy ZelmanHousing guru Ivy Zelman told CNBC’s “Fast Money Halftime Report” yesterday that “now” is the best time to buy a house.

“It’s the best time in the history of our country with mortgage rates that are below 4 percent that [renters] can actually lock in their fixed cost and create wealth for themselves,” she said.

The founder and chief executive of Zelman & Associates is known for calling the housing peak in 2005 and the housing bottom in 2012.

Zelman said this housing cycle is like a “tale of two markets.”

She said the entry-level market is beginning to accelerate, and builders’ trepidation is slowly beginning to fade as more people are beginning to move to the suburbs.

The market would seem to be in agreement with her on that. The SPDR S&P Homebuilders ETF (XHB) was trading up more than 1.15 percent Monday morning, and on pace for its best day since Sept. 22, when the XHB gained 1.11 percent.

On the other hand, she said the luxury markets in some cities are in the beginning see “a little bit” of a correction.

When asked about whether millennials will ever buy homes, Zelman said they are beginning to buy houses, but mainly those who are starting a family.

“What we’re seeing is that they want to go to the suburbs, millennials are buying and we have nearly 75 million of them just beginning to come through the pipeline,” she said.

Click here to see video.

Does Your Sales Team Help Implement Your Strategy?

Guiding The Sales Process

All too often, the reason a company’s strategy fails is its salespeople focus solely on quotas, targets and bonus levels, ignoring the company’s overarching strategy. If you want your strategy to be implemented by your sales team, you should make sure three things are happening:

  1. Your salespeople are targeting the right people. It’s common for sales teams to chase easy deals, disregarding the ideal client profile. Make sure your sales team is focusing on the organizations/segments you wish to market to, and be assertive about your expectations.
  2. If your strategy changes, your salespeople’s does too. Sales professionals need to break away from old approaches and determine how best to adjust their marketing techniques to the new company strategy.
  3. Your sales team is focusing on client needs. Instead of old-school pitching, sellers need to have deeper conversations with clients about their objectives and provide insight on how the company can help.

Remember, every hour spent developing an opportunity that’s outside your sweet spot is a non-strategic use of time, energy, and resources.

Continue to Scott Edinger’s HBR article…

The Emotions Behind Home Buying

The Psychology of Buying and Selling a House

A home is the biggest investment almost anyone will make, but often emotions get in the way of making the right choice.

It’s a fact of life:  Homes come with far more emotional weight than any other investment we make… writes Matthew Kassel with the Wall Street Journal.

A home is a refuge from the world, a place to raise a family and, for some people, an investment they hope will bring them a good chunk of money down the road. We fall in love with houses in a way that we never fall in love with a portfolio of stocks and bonds.

All too often, though, we don’t realize that how we feel about homes blinds us when it comes time to buy or sell. We let our emotions blind us to cold facts about the market or the realities of ownership. Or we prioritize one set of emotional needs over others that are just are strong but may not be evident at first. And ignoring them can lead us to make bad financial decisions that can affect us for decades to come.

For instance, people might focus on their desire for a house that’s a certain size or style, but ignore the fact that they want to spend as much time as possible with family. So they might buy a “perfect” house that requires them to make a long daily commute to work and keeps them away from home for two extra hours each day.

The home-selling side of the equation brings its own set of thorny issues. Homeowners often have an overly rosy view of their home and expect it to increase in value far beyond reasonable expectations. And when they put it on the market, they often stubbornly cling to their asking price—even if it means leaving it up for sale far longer than they planned, and risking the possibility of not selling it at all.

Here’s a closer look at some psychological missteps that buyers and sellers often make as they wade into the housing market.

Ignoring the big picture
Home buyers are always on the lookout for features—like a longer driveway or bigger backyard—that will make them happier with their home. But people don’t realize that those changes may not make them happier with their life as a whole.

“When people move to a better housing, they think they will be a lot happier overall,” says Shige Oishi, a co-author of a 2010 study on the subject in Social Indicators Research. “When they actually move, however, their overall happiness does not often change because there are many trade-offs in moving.”

One of the biggest trade-offs is commuting. Many move to live in a bigger house, but that bigger house is often farther away from work—so that means more commuting, which tends to add stress and detract from overall happiness. A 2008 study in the Scandinavian Journal of Economics shows that people who had longer commutes reported “lower subjective well-being” than those with shorter commutes. “If you’re moving to a place far away from your friends, but it has nicer stuff, it’s not a great deal for your happiness,” says Elizabeth Dunn, a psychology professor at the University of British Columbia.

In another study in the Personality and Social Psychology Bulletin, Ms. Dunn and her co-authors explored the matter of expectations vs. reality in another way—by looking at Harvard undergraduates who were randomly assigned to different dormitories. The study showed that first-year students incorrectly predicted what would bring them the most satisfaction from their dorms—physical features like location on campus, the attractiveness of the residence, room size and desirability of the dining hall and facilities.

In the initial survey, the students put no weight on social features, such as relationships with roommates and a sense of community in the residence. But when the researchers checked back in with the students after they’d been living in their dorms, the only thing that appeared to matter for their happiness was the quality of the social factors.

“It’s so easy to get caught up in comparing the physical features of the places you’re looking at,” says Ms. Dunn, “but you should really stop to consider how the places you’re considering will shape your social relationships.”

Overlooking big expenses
People who are buying homes tend to compartmentalize their expenses and not add up the total cost of everything needed to fix up and furnish the house, says Alex Tabarrok, a professor of economics at George Mason University. That can lead them to make poor choices about how much to pay for a home. For instance, they may overspend on a down payment for the house itself and leave themselves without enough money to buy the sort of decorations or furniture that they want. “When you’re getting a house, think about furnishing it at the same time,” says Mr. Tabarrok.

Weighing buying vs. renting
The biggest budgeting concern is, of course, whether you should buy a house at all. Research shows there are psychological benefits to taking the plunge—but also to opting out.

Buying a house can give people a psychological boost by making them feel like they’ve “arrived” and are part of the American ideal. Homeowners also may feel as though they have more control over their lives since they’re not dependent on the whims of a fickle landlord.

But while those factors may lead people into buying a house, there are other negative elements that homeowners don’t discover until after they’ve taken the plunge.

Research, for instance, has shown that home ownership can cause undue stress. The amount of work necessary to maintain a home—such as decorating, or mowing the lawn every weekend—may be too much for some people. Others may be overwhelmed by the financial aspect of ownership, such as being tied to a big monthly mortgage, or keeping up with repairs and other unforeseen costs.

Expecting a big return
When it comes to selling a home, most people aren’t in for a huge payday. Yet many are overly optimistic in their home-price expectations, according to Robert J. Shiller.

Dr. Shiller, a professor of economics at Yale University, co-wrote a paper, updated in 2014, that looked at the ways recent home buyers around the country think about the future values of their properties.

Using questionnaire surveys, Mr. Shiller and his co-authors found, among other things, that home buyers have extremely high long-term price expectations. That can lead people to buy homes that aren’t a good fit in terms of location or social scene just because they seem like good investments. Or they may stake their plans—such as retirement—on a certain return and find themselves scrambling when they come up short. On a larger scale, this over-optimism can lead to speculative booms that warp the market.

While it isn’t entirely clear why homeowners are usually so cheerful about the future, the researchers postulate it may result from the “money illusion”—a failure to take inflation into account.

“Imagine that your grandmother dies, and you’re managing her estate,” Mr. Shiller says. “Her house is worth $30,000 now, and you look at what she paid—$5,000. You think, ‘Wow, that’s a lot.’ Now why does it seem so big? Because you’re not reflecting that all prices went up sixfold” and you’re basically not making a profit after taking inflation into account.

Not wanting to come up short
People have many reasons for selling their homes, and for setting the prices they do. But research has found that the most powerful emotional drive at work in a sale is loss aversion—not wanting to sell a home for less than what you paid for it.

In a study in The Quarterly Journal of Economics, researchers found that homeowners latch on to the price they paid for their home with the hope that they can get more when they put it on the market. But that isn’t the soundest idea, says Christopher Mayer, a co-author of the study and a professor of real estate and economics at Columbia Business School, especially if your house has depreciated in value. It’s a fallacy to assume that you’ll be able to recoup losses you’ve already incurred. The current market price has nothing to do with how much a person actually paid for it.

There is a nuance here, though. People who stubbornly stick to an asking price above market value risk not selling their house at all. But sometimes they are rewarded.

Mr. Mayer and a co-author analyzed housing data from downtown Boston in the 1990s, culled from a boom-bust cycle. Condominium owners who put their houses up for sale above the market rate—though still below what they paid for them—sold their homes for more than expected, even as their properties lingered on the market for longer than usual.

Mr. Kassel is a writer in New York. He can be reached at reports@wsj.com