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Two Homebuyers’ Reactions to Foreclosure Listings

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By : John Cutts    99 or more times read
The decisions of Hertz and Amol in relation to home buying at a time of low home prices and long foreclosure listings illustrate the contrasting ways homebuyers are reacting to the housing market.

Hertz, a 32-year-old resident of the Washington, D.C. area, has been monitoring home prices in the Bethesda area since he came back in 2005 from Massachusetts Institute of Technology to launch his own information technology company in the district area. With an idea of the type of home that he liked, he searched and searched for a place that fit his requirements and his finances.

In a 2007 article he wrote about his search, he wanted his home to be priced around $500,000. As the months turned to years, he then observed that home prices kept going down after the 2007 subprime crisis added more and more residential properties to foreclosure listings.

Hertz knew that as foreclosure listings get longer and longer, home prices would drop further. He monitored the local housing market with special attention, even using spreadsheets to track the properties he is interested in. Meanwhile, he has been staying in the Dupont Circle apartment he had leased on a per month basis since 2005. Back then, he only intended to stay for several months.

Behavioral psychologist Rom Brafman, who co-wrote a book on irrational behavior, said the lure of the idea that perhaps home prices will fall further has prevented many prospective homebuyers from buying a home. It has also contributed to the delayed recovery of the housing sector.

But as Hertz continued his search for a dream home that is affordable, he met his fiancee. This development has changed Hertz’s pursuit of the price factor. Finally, he and his partner found a three-bedroom apartment downtown Bethesda and Metro and made an offer. They bought it at $725,000, which is $14,000 lower than the listed price.

Buyer psychology is a factor in the housing market, according to Brafman and Nicolas Retsinas, head of Harvard University’s Joint Center for Housing Studies. Retsinas said that homebuyers are redefining the real meaning of a home in the midst of hardships and endless foreclosure listings. They question themselves why they are buying a home in times of corporate downsizing, job losses, foreclosures and financial hardship.

Meanwhile, Amol, a 32-year-old government contractor, has decided to wait it out. His job is secure, but news of layoffs, business closures, long foreclosure listings, increased homelessness and jobless claims has unsettled him. Despite the low home prices and the long foreclosure listings to choose from, he is taking his time.
John Cutts has been educated in the finer points of the foreclosure market over 5 years.

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