{"id":2779,"date":"2022-06-10T09:36:20","date_gmt":"2022-06-10T09:36:20","guid":{"rendered":"https:\/\/royabhishek.in\/urbanbuyer\/how-investor-mindset-moves-the-markets\/"},"modified":"2022-06-10T09:36:20","modified_gmt":"2022-06-10T09:36:20","slug":"how-investor-mindset-moves-the-markets","status":"publish","type":"post","link":"https:\/\/royabhishek.in\/urbanbuyer\/how-investor-mindset-moves-the-markets\/","title":{"rendered":"How investor mindset moves the markets"},"content":{"rendered":"

[ad_1]
\n<\/p>\n

\n

If they\u2019re armed with all the research available in today\u2019s information age, why can\u2019t economists agree on where our property markets are heading?<\/p>\n

In fact, a better question would be \u2013 why do so many get it wrong?<\/p>\n

The simple answer is those market movements are far from an exact science.<\/p>\n

\"Mindset\"<\/p>\n

The fundamentals are easy to monitor.<\/p>\n

Things like population growth, supply and demand, employment levels, interest rates, affordability and inflationary pressures.<\/p>\n

However, one overriding factor that the experts have difficulty quantifying is investor sentiment.<\/p>\n

And that\u2019s what\u2019s really been behind market movements of late.<\/p>\n

Last year when all the news was good and we were feeling confident that we had this coronavirus thingy licked, investor sentiment was positive and it led to strong economic growth and property a booming property market.<\/p>\n

On the other hand, for much of this year they\u2019ve been worried by the barrage of negative sentiment surrounding the uncertainties about rising inflation and interest rates and this negative sentiment has led both buyers to go on strike.<\/span><\/p>\n

We\u2019re not rational<\/span><\/h2>\n

I\u2019ve found that investors often suffer lapses of logic when investing and many of their investment decisions are driven by emotion.\n<\/p>\n

For example, we tend to extrapolate the present to the future.<\/p>\n

When things are booming we tend to think the good times will never end and when the market mood is glum, we have difficulty seeing the light at the end of the tunnel.<\/p>\n

Think about it\u2026when the media is full of reports about property prices falling and an impending housing crash, many investors become scared and sit on the sidelines, believing the end of the property is nigh and things will never improve when in reality much of the risk has been removed from the market.<\/p>\n

Conversely, when property markets are booming and stories of investors seemingly making large gains overnight abound, people, want to jump on the bandwagon and cash in, often at a time when the market is near its peak.<\/p>\n

Other emotional traps include becoming overconfident, wishful thinking and ignoring information that conflicts with your current views.<\/p>\n

In other words, many investors make their own \u201creality.\u201d<\/p>\n

Can you see how investor psychology, drives booms and busts?<\/span><\/h2>\n

Can you see how the dominant investor mentality of the time helps drive the property cycle?<\/p>\n

Just to make things clear\u2026home buyers, who make up around 70% of property transactions drive our property markets.<\/p>\n

But investor activity creates our booms and busts.<\/p>\n

Simply, over the last couple of years, investor frenzy driven by Fear Of Missing Out drove the property markets in Sydney and Melbourne to dizzy heights.<\/p>\n

\"Fomo\"<\/p>\n

\n

Go back a few years further in the period leading up to the federal election in 2019 (remember that? – it seems so long ago now) investors put on the brakes worried about tax changes that never eventuated, but the effect was that property values fell.<\/p>\n

But then after the 2019 election results, in the second half of that year, investors and home buyers jumped back into the market, demand rose and so did property prices.<\/p>\n

Then look what happened the next year in 2020…<\/p>\n

Fear of Coronavirus once again put many people on the sidelines, but then in 2021 buyers and sellers once again returned to the market.<\/p>\n

We follow the herd<\/span><\/h2>\n

Obviously, one or two misguided investors won\u2019t be able to influence property prices, but investor psychology is infectious.<\/p>\n

People tend to want to do what others are doing – they \u2018follow the herd\u2019 because going against popular opinion is perceived as risky.<\/p>\n

What if you make a mistake? <\/em><\/p>\n

What if \u201cthe crowd\u201d is right and you are wrong?<\/em><\/p>\n

This behaviour stems back to the days of our ancestors when it was safer to remain part of the herd rather than leave the security of the pack and be eaten by a Saber-toothed Tiger.<\/p>\n

\"Herd<\/p>\n

This \u201cherd behaviour\u201d is magnified by several things including;<\/p>\n