On the House: Fear itself now rules the market

There are a lot of reasons the real estate market is in the state it's in, but the one that seems to be overwhelming all others is fear.

Fear that houses might be worth less a year from now than they cost today is keeping prospective buyers from committing to purchases, says Commerce Bancorp chief economist Joel Naroff.

Fear of not being able to sell their current houses is preventing trade-up buyers from taking the "leap of faith," as Naroff puts it, and signing agreements of sale on new houses. Three or four years ago, at the height of the boom market, typical trade-up buyers would think nothing of signing sales agreements while their current homes were unsold.

The fear, Naroff and other economists maintain, is fed by the belief that a house is primarily an investment instead of a place to live.

Yet a house should be only one piece of a portfolio, along with some long-term investments, such as an IRA or a 401(k), and savings. That's a lesson from the housing boom and bust of the 1980s that every subsequent generation seems to forget until it's too late.

Think I'm kidding? GfKRoper interviewed more than 1,000 people nationwide on their attitudes toward their finances. The survey found that those 35 to 49 years old were most apt to be concerned about mortgage payments, while those 65 and over were concerned about the value of their stocks and other investments.

The lesson I learned from many years of covering the Counselors of Real Estate - an elite, invitation-only group of movers and shakers in the business - is that property is not as liquid an investment as stocks or money-market funds and, therefore, not as easy to get rid of when times are tough.

Naroff makes the critical point that a homeowner so focused on what his neighbor sold his house for two years ago isn't going to be in any hurry to sell his place now and buy another - even if the sale price is three times what he paid for it.

Real estate agents report, meanwhile, that buyers still want it all and, as always, are unwilling to pay for it instead of showing a willingness to compromise.

"People have to get a sense of what a fair price is to get the market moving, but too many of them are still 'bottom-fishing,' " Naroff says - even though prices remain too high.