Here’s an interesting economic phenomenon. I wouldn’t have expected the difference to be so large.

“More than two-thirds (69 percent) of home sellers purchased a home after selling their previous residence, up from nearly half (47 percent) in 2012, and from only 12 percent in 2011.” CAR.org.

A psychological fact that helps explain a lot of weird economic behavior is that losing $1 hurts people a lot more emotionally than the pleasure of gaining $1. Fear of loss is twice (or more) the motivator than the opportunity for gain.

You can see that effect in the quote above very clearly.

It’s a Wash

Home prices were much lower in 2011 in California. So many people who sold their homes in California in 2011 must have been bummed by the financial lose but at the same times the prices of homes they could purchase was also very low. It would have been a GREAT time to buy but only 12% of home sellers bought another home after selling in 2011.

On the other hand, home prices were much higher in 2013 than in 2011 but 69% of those who sold a home 2013 bought another home despite the higher prices.

Whether you bought AND sold in 2011 or 2013, it was pretty much a wash. You made more money on your home in 2013 but you also had to pay more for your next home as well. It’s pretty much a wash no matter where prices are when you buy and sell at the same time.

Loss Aversion

I think selling for so little money in 2011 was emotionally draining and depressing for sellers and that led to inaction – not buying another home even though California home prices were great.

Selling, however, in 2013 when prices were much higher made sellers feel upbeat and hopeful so 69% bought another home.

By not buying again in 2011, those home sellers kinda lock-in their loss.

Advertisements