The "Not My House! Sentiment"
A recent study conducted by Zillow finds what they call a “Not My House! Sentiment,” where despite the evidence that 77% of U.S. homes actually declined in value in the past year, 62% of homeowners believe their own home’s value has increased or stayed the same.
How can this be?
I think that part of the story has to do with the changes and tinkering we do to your homes coupled with our inability to understand that the changes we have made to fit our own individual taste might be ones that others don’t see or don’t value.
When someone moves to a new house they often make changes to their homes, breaking a wall, changing the tile, fixing a bathroom, adding a porch etc. As a consequence of this process the house is now tailored to its particular owner with its unique individual taste. Now their house is great for that person.
When a home owner compares their own house (who has been tailored to their own taste) to a house that was sold for a low amount down the street they can easily reason why the price of that other house (the one not tailored to their own taste) was so low. After all that other house was just not as nice, not as great, not as suited to their taste. There was something in that other house that was just not right, and this must be the reason it did not sell well. Right?
Can anyone get over this egocentric bias of looking at our own homes from the perspective of our own preferences? I suspect it is very hard to do, and maybe the only people who can do it well are those who are unable to tailor their homes (maybe due to some condo regulations). These people are going to be less susceptible to the “Not My House! Sentiment” and therefore understand more quickly that their values of their homes are going down. This will probably earn them some depressing sleepless nights thinking about this, but they might also be able to make better decisions about their homes.
Dan ~ You asked: “Can anyone get over this egocentric bias of looking at our own homes from the perspective of our own preferences? I suspect it is very hard to do…”
Fundamentally what you’re asking is: Can anyone control their thoughts when they look at something? …You can discover the answer for yourself by sincerely practicing what sages have implored us to practice over millennia: Don’t just look; rather, be also aware of yourself looking. In other words, include yourself in the experience of looking.
Is this Self-awareness hard to achieve? …Well, it’s an act of Will — so each person will find it easy or difficult according to the current state of his Will. One way to become aware of yourself looking is to pay attention to the shapes & colors in your peripheral vision. You’ll notice that your thoughts cease — you have temporarily overcome the ego and are simply seeing things as THEY are, not as YOU are. …As the house actually is, rather than “from the perspective of our own preferences.”
Dan:
My wife and I went through this exact scenario. We purchased our house two years ago for $239k. Four months ago we went to refinance and the appriaser came back with an appraisal of $235k. This seemed “unfair”. My wife and I were thinking $250k.
It was based on a property on our street that was originally listed for $285k. An offer was made of $259k and the owner decided this was too low. He hung in there and eventually sunk $20k into a new kitchen. He continued to hold out and was then transferred out of town. In a hurry to sell his house, he unloaded it for $239k.
I was sanguine about this, (and I hadn’t even read your book yet), but my wife was livid. Like you said above, we had put a lot into our new house (Carpet, fixtures etc) and we thought we “deserved” more.
Richard
Dan:
This discussion reminds me of the research suggesting that those suffering from depression tend to have a more realistic view of themselves than “the healthy,” who, purportedly due to egocentric bias, overestimate themselves and their future prospects (and the value of their personal possessions?).
I wonder if you have done work in this area or whether you credit that research.
You seem to focus on “predictably irrational” decision-making that is counter-productive, that creates inefficiencies, but some (particularly egocentric bias? maybe the endowment effect is related?) may be important net-positive “cognitive errors”?
Well, isn’t there something similar where if you ask people how good of a driver they believe they are (on a scale of 1-10, with 5 being average), they will say something like 7-8 on average? I think the house price issue may be like this, we consistently overestimate ourselves and underestimate others.