I recently ran across this graph (not copyrighted, as far as I can tell) about the emotional cycles a buyer goes through during the purchasing process. It got me to thinking about how this chart can also be used to show the emotional process during the real estate market “boom – bust – recovery” cycle as well.
We often make financial decisions based on emotional reactions, even when we know better intellectually. During the housing boom people could not buy a home fast enough, and were thrilled to do it. And at the peak of real estate values almost every homeowner felt great about their real estate portfolio, even euphoric. Now that we are down in the bottom of the market there are plenty of sad stories and a number of despondent owners and agents with their heads hanging low.
It's also interesting to note that even after the signs start to point up we still go through depression before hope and relief finally sets in. But only after the market is back and recovery is in full swing does optimism finally start to take over again. And then we start the cycle all over. Isn't life grand!