The Psychology of Homebuying
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This is a special edition of your Money Briefing for Friday, April 28th. I'm J.R. Whelan for The Wall Street Journal. Welcome to the fifth and final episode of our special series, Under Contract, Your Guide to Homebuying. Today, we're focusing on the psychology of buying a house. There's just a certain warm feeling about being home. You hear it all the time.
There's no place like home. There's no place like home. In the Broadway classic The Wiz, Diana Ross yearns for the feeling of the comfort and safety of home.
Those emotions often drive prospective homebuyers through the process of landing the house of their dreams. But the wistful romance and the nostalgia of home can make them lose focus and pursue a new home for the wrong reason.
There's some sort of synonymous relationship between buying a home as sort of being the first rite of passage for a married couple or a couple starting out in life. We feel the white picket fence, the house with the yard, the baby in its own nursery is where we should be going when we're younger and starting out. And sometimes that's not always the best decision.
Over the past month, we've talked a lot about how to buy a house. And if there's one message underlying all those conversations, it's that buying a home is a lot. It's creating a budget, thumbing through dozens, maybe hundreds of listings, finding a real estate professional, getting the best mortgage rate. They can all help you land the house of your dreams, but the home buying process really succeeds and fails in your head. So how does psychology play a role in the home buying process? I'm joined by financial psychologist and author Dr. Brad Klontz, who spent the last 20 years studying what we do around money. So Brad, this is one of the biggest expenses someone will take on in their lives. And as we've heard in the previous episodes in our series, it requires meticulous planning.
What causes people to often enter the home buying process with less than a sharp mind?
What emotional themes introduce the psychology of homebuying?
Well, first of all, we're wired to do it all wrong. So when we see a group of people doing one thing, we have a panic response, a survival response. So we're very, very inspired to do the same thing, whether it's good or bad when it comes to finances. And then add on that our own individual financial psychology that we got from our parents, from our grandparents. We develop beliefs around money, which in our studies we call money scripts. And these beliefs have a profound impact on our spending decisions and basically all aspects of our relationship with money. And these beliefs we also inherit have to do with home ownership. So what did your parents teach you? What did they tell you about whether you should own a home or not own a home?
And because these things have a profound impact on us and they can be passed down through the generation. So I'd be curious about what your grandparents thought about home ownership, because these beliefs will set you up emotionally to decide whether you're doing the right thing in life around money or you're not, or you're missing out based on those beliefs and those early messages we get around home ownership.
We heard in last week's episode that people sometimes enter the housing market at the wrong time. How does psychology work into that?
Well, one of the things that happens in just about every area of investing or purchasing decisions is FOMO, fear of missing out. This is hardwired into our brains. We saw this back in 2008, where people were doing what in retrospect seemed like crazy behaviors.
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