Most of us in America have come to view our home primarily as an investment, and secondarily as a place we live. I think this has contributed to the irrational behavior concerning home values so many have exhibited in the past few years.

FEAR & GREED. There is a newsletter in the investing world that repeatedly reminds its readers that these are the only real factors that make the stock market move for most consumer-investors. They buy out of greed, and sell out of fear. This has also started to make its way in to the home marketplace. Homeowners have gotten greedily attached to what they "thought" their homes were worth recently, and now that has paralyzed them from facing the current blunt reality. As they have watched homes on market drop in price, FEAR has kicked in and caused similar paralysis. Just like their investments, and even more so, we are all extremely emotional about our homes. And generally, though not always, the emotional is in competition with the rational.

A home is not primarily an investment - at least not in the traditional sense of the word. Most people think of an investment as money you purchase something with in the plan (hope?) that it will increase in value. If you have bought a residence with that as the main motivation you made a bad investment. There are many far better places to put your money which are safer, give more more consistent returns, and require little or no upkeep. How about a Federally insured (FDIC) CD at your local bank which currently pays about 5.25% - with no risk, no maintenance expense, and limited taxes due on the earnings. In the form of a Roth IRA, you would have no tax burden in some cases.

The truth is, or should have been, that you bought your residence because you saw it as a nice place to live, and even thought that you could get your money back when you were done with it. And if you take care of it and stay there for awhile, this is almost always true. Ever bought a car that did this for you? Boat? Piano? Think about it - you buy it, use it, get it dirty, have your pet pee in it, decorate it to your unique tastes, - and then you expect someone else is going to pay you more than you have in to it? Pretty illogical really. If you think your decorating is so gorgeous your home is worth more for it you are plain wrong.

Because there was a short lived "cheap money" period (2003-4) on the tail end of a period of slow growth in real estate values, Americans briefly experienced a balancing of the market - that quickly got out of control. Unfortunately, as with any commodity boom, the folks who bought at the tail end will lose some money IF they need to sell. All those who bought well and before or in the early stages (pre 2005) will keep average returns.

The larger casualty of this recent series of events is John Average American. He has decided that he is ready to change homes (for reasons of family size, stage of life, etc.) but is incapable of doing so. The reason is simple, but sad. He is convinced that his home is worth some magical number that HE FABRICATED IN HIS MIND two years ago when a neighbors home sold for some ridiculously high price. And of course John A.A. (pun intended) knows his house is even nicer and so clearly would bring an even higher price. (Ever thought - EVERYONE thinks their home is worth more than everyone else - which makes all but one person wrong? Any time you think everyone else is wrong and you are right, better think again. It is unlikely true.) Because he is emotional about his home, he is now in a war to prove he was right about his home's value. After all his home is a reflection of him. And until he gets over this, he is not moving. He will need to wait until prices move up (both sell and buy) and then he will trade homes. He won't buy any cheaper (spread between sell and buy), but he will have satisfied himself about his ideas of what his old house is worth.

The real estate market is less volatile than the stock market, and hence the price movements are much slower - both up and down. Today, the homes that sell are from sellers who have made up their mind they are moving - for whatever reason.

In the Twin Cities new construction markets the rational and desperate sellers are selling all the homes that are indeed moving. Tune in to my next posting to hear my thoughts on which you may want to buy from. . . .