Though professor Meir Statman’s latest book, and my latest personal obsession, explores a set of investor values, desires and motivations so comprehensive I’m just skimming the surface by highlighting them in a series of columns, one investor craving he pinpoints is so core to what virtually all of us who live in developed nations (and don’t have to worry about clean water, etc.) desire that it singlehandedly "up-levels" the subject of the book to what humans really want.
"We want hope for riches and freedom from the fear of poverty," Statman states so simply in his book, "What Investors Really Want: Know What Drives Investor Behavior and Make Smarter Financial Decisions."
And when it comes to real estate, therein lies the rub. Much has been made, in recent times, of the fact that many well-off countries don’t have high rates of homeownership. In Switzerland, one of the world’s most prosperous nations, the homeownership rate is only 31 percent, less than half the current American homeownership rate.
As the subprime mortgage market imploded, spawning the foreclosure crisis, real estate industry participants — from individual consumers to media pundits to Capitol Hill economists — began a wide-scale rethink of what’s so great about homeownership, anyway.
Some of these have pointed out that the so-called American Dream only began to include homeownership in 1918, when the Department of Labor teamed up with real estate and construction industry organizations to roll out an "Own Your Own Home" campaign.
As early as 1931, American presidents have touted the emotional and stability-boosting perks of owning vs. renting your home, typified by Herbert Hoover’s comment in that year that "they never sing songs about a pile of rent receipts."
The party line, for a long, long time, was that homeownership was the solution to the fear of homelessness, the fear that your wages alone would never keep up with inflation the way that your home’s long-term appreciation could, and the general fear of poverty. And smart, sustainable homeownership founded in rational mortgage decision-making does, indeed, address this fear.
(As we’ve seen, though, poor real estate and mortgage decisions founded in taking on unsustainable mortgage obligations or relying on unsustainable appreciation patterns validate and manifest the very poverty fears so many have tried to eliminate using real estate.)
But on the way up to the top of the market and when we collectively got there, in 2006 and the preceding few years, the messaging about what’s so great about real estate and homeownership had gone beyond the age-old "control your own destiny," "tax advantages," "pride of ownership" and "stop throwing money away" arguments in support of ownership.
With a seemingly unending national trend of appreciating real estate values and easy financing, a cottage industry had insinuated in the American psyche that real estate equals riches.
Infomercials showed testimonial after testimonial of "regular" people who had been broke about 15 minutes ago, bought some homes with nothing down, and either flipped them or rented them out for beaucoup bucks with nothing more than some tips from a book or a checklist from a CD-ROM.
Wealth-building self-help gurus and authors pointed out statistics showing that virtually every millionaire owned one or more homes, and that many self-made millionaires got that way via income-property ownership, to drive their message that homes were the road to riches. Many of these data points were true in fact, but oversimplified in interpretation.
A lot of these modern-day self-made real estate millionaires put a whole lot of strategy, smart timing, sweat, blood, tears and their own money into their empires — and many of them have been hurting, big time, in the post-bubble market.
The infomercials and wealth-building folks failed, by and large, to hip the home/riches hungry class they created to the risks of real estate-driven wealth-building efforts.
(To be fair, every wealth-building strategy involves risk, and few people of any profession or inclination predicted the depths and length of time to which the real estate recession would extend.)
And to Statman’s point, the craving for riches is so visceral, so deep that warnings of investment risk are often ignored, especially in the face of overwhelming anecdotal evidence of profits, profits and more profits.
In that vein, almost every American adult was within a couple of degrees of separation of someone who had made insane dough on a house flip, or had at least doubled their money when they sold their own personal home.
Add to that the books, CDs, DVDs and infomercials singing the refrain that real estate is the hope for riches made real? Forget about it ("it" meaning risk). Many did.
I’ve written here before about this recession having been apocalyptic, meaning that it lifted the veil of many delusions from the American money mentality.
People still crave to be rich; in fact, data shows that recession-budget-weary Americans are now spending like crazy on luxury goods, despite the fact that we’re just getting on our feet.
But the delusion that real estate can make you millions with nothing more than your signature has been cured, hopefully, as has the idea that homeownership is a panacea-style poverty preventive.