Take 2 Tylenol, Reduce the Asking Price?

Yesterday, Wall Street Journal published an article titled "Can Tylenol Ease the Pain of a Home Sale?" in response to a study at the Univeristy of Kentucky. The study "Can Acetaminophen Reduce the Pain of Decision Making?",  based on the principle that physical and emotional pain can overlap, has now been connected to the real estate industry. Psychologists, journalists, and real estate professionals are asking the question, could painkillers cause homeowners to reduce their asking price? 

According to www.scientificdirect.com, "experiments showed that acetaminophen reduced the pain of decision-making, as indicated by lower attitude change that accompanies cognitive dissonance and lower selling prices when selling personal possessions." The study of 95 undergraduate students compared asking prices when the students were asked to sell a mug. The students were asked to study the mug for 30 seconds "to create a sense of attachment," before making an offer, according to WSJ. Students who took acetaminophen asked for about $4.15 to $5.92, while students who took a placebo asked for about $5.55 to $6.27. 

Stefanos Chen of WSJ explained that "the results illustrate 'loss aversion'... the thought of losing the mug caused pain, and the acetaminophen helped students who were attached to the mug decide to sell at a lower price." Professor Nathan DeWall of Univeristy of Kentucky stated, "It's the same principle at play when a sentimental homeowner balks at an agent's comparable sales figures and demands a higher price for his home."

It is hard to say without further research whether or not the same results would apply to an item with much higher sense of attachment - such as a home. 

What do you think?  Leave your comments below! 

New Home Sales Up, Busy Season Ahead for Housing

Data released today by the U.S. Census Bureau and the Department of Housing and Urban Development revealed that new residential home sales in April were up 6.4 percent from the revised March estimate of 407,000. Sales reached a total of 433,000, at a median sales price of $275,800. CFFunding is pleased to see another sign of economic recovery as this increase shows improvement in the housing industry.

The New Residential Sales report also shared revisions dating back to January 2012, when new home sales were at a rate of 335,000. New home sales saw large improvements from April 2012 to April 2013 with a jump from 354,000 to 452,000, and have dipped about 4.2 percent over the past year to reach the present estimate of 433,000. According to Wall Street Journal, “Sales of new single-family houses represent a fraction of homes purchased in the U.S. and can be subject to large revisions… but the report provides a more timely reading of the housing market than other measures because it tallies sales at the moment a contract is signed rather than at its closing.”

Many economists expect a busy spring and summer season for the housing industry, as new home construction increased for the third month in a row this April. Both multifamily and single-family construction increased, according to the Commerce Department. Stocks also increased for houses on the market in April, hitting a 3.5 year high, according to Lucia Mutikani. Although the outlook is positive, the industry is still considered to be in a “slump,” as high home prices, low inventory, and the harsh winter weather have had a negative effect over the past year. CF Funding hopes for a full recovery as the Federal Reserve plans to assist the housing industry by maintaining low interest rates.

Current mortgage rates remain unchanged, with the most prevalently quoted 30 year fixed rate (best-execution) at about 4.125-4.25 percent.  FHA and VA loans today range on average from 3.75 percent to 4 percent. 15 year fixed rate mortgages are at an average rate of 3.25 to 3.375 percent, and 5 year ARMs range from 3 to 3.5 percent. Homebuyers should keep in mind that interest rates range based on credit and program availability, and rates may change from day to day. Those interested in a purchase or refinance should contact a loans specialist at www.cffunding.com to see which programs and rates are available today.