Fear will ruin you if you let it. 😱 

If you're like me, there have been plenty of times when you've held back due to fear.

Maybe you didn't speak up in the meeting, say how you really felt, chose not to go to the event, or held off making the investment.

Unfortunately, there are a huge number of times in our lives where fear influences our decisions.

That's a big problem..

Scared people make bad decisions. 😳

You can apply this thought to most areas of life and let's focus on the markets for this discussion.

Specifically, we're talking about people fearing the next market crash.

Home prices have increased significantly in 2021 and 2022 (+50% in many areas).

This has got locals in markets across the United States wondering how on earth home prices could do anything but come back down.

Because of this thinking, there are plenty of people who are waiting for a big drop in house prices before they buy their home.

At the heart of the issue is fear.

Fear is seductive for two main reasons.

1) Fear triggers our survival instincts and we are easily consumed by fear if we believe that being fearful could protect us.

A long time ago, when we lived in the wilderness, this mattered a lot because it kept us from getting eaten by animals.

Now, fear kicks in when we're worried about how others will think of us or if we're making a big purchase.

Instead of worrying about our physical safety, we're preserving our social standing.

And if you lived through a traumatic experience like the great financial crisis of 2008, you're even more cautious about investing in real estate.

2) Further, predicting a big drop in real estate or the stock market can make you feel smarter than everyone else.

You appear to have information the rest of the market is missing.

The problem is most experts who successfully predict a crash hang their hat on the one time they got it right but never bring up the years where the markets roared higher in spite of their forecasts for failure.

After all, broken clock is right twice a day..

In general, when you're fearful, you start to think narrowly and cherry-pick information that supports your viewpoint.

On top of all that, social media doesn't incentivize rational thinking.

Extreme viewpoints and predictions of crashes get views and go viral. 

And because of this we get far more people predicting complete crashes or unlimited profits.

What does the data say about home prices? 📈

When in doubt, zoom out.

Usually fear creeps in because we don't have a full picture of reality.

Our experiences and biases limit our point of view and can lead us into incorrect conclusions.

Also, we usually are only looking at the last few years of data which can reduce our vision.

If we look back at the past 60 years of home prices in the United States we see a chart that is mostly up and to the right.

On average, home prices have increased 5.6% a year - even when we include the several times prices went backwards.

And every single year there were plenty of reasons people were predicting home prices would collapse lower.

Faith in success, not in failure. 💪

So what should we do?

Instead of having being fearful - believing that the worst will come true - we should live with faith that success is on the other side of our actions.

This makes me think about Indiana Jones and his leap of faith:

We can make better decisions by looking up the long-term history of whatever you're considering so you can get a big picture of the situation.

Ask yourself: "what would life look like if things worked out the same or better than the long-term average?"

The most probable outcome every year in any market is the long-term average. 

Lastly, as you take action towards your goal, consider how you could reduce your risk of failure.

When it comes to real estate, there's a plethora a ways risk is reduced (home inspection, appraisal, insurance, home warranty, etc.). 

On top of that, if you've got flexibility on your exit strategy, it will be easier to make better decisions.

The people who get themselves in trouble over-extend their finances. 

They buy a house to flip with a tight window to renovate and can get in trouble if there are any delays in construction or selling the property.

And the longer you plan on owning the property, the lower your risk of being impacted by any downturn.

Bottom line: you'll be right most of the time if you expect markets to rise and invest accordingly.

None of us know the future, but based on the history we have, it's the best path to success. 🚀

Dr. Alex Stewart
Founder