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Consumer Confidence Can Work Both Ways

In these times many are writing about what role confidence, or lack of it, plays
in distressed markets and foreclosure. Here are two views you may hear in the
marketplace:
1. Naive Confidence Can Help
Much is being written in these times about the role of consumer confidence
in down and distressed markets—and in market recovery. Experts seem to
agree that there is some level of consumer confidence, or exuberance, which
is the hallmark of recovering and rising markets. Writers in major news
organizations have taken to calling this mindset “naïve confidence”—the
willingness to overlook risks in favor of rewards in markets.
2. Overconfidence Can Hurt
Four Primary Causes of Personal Shift
As has become common in this market, a homeowner has an event in their life that
causes a “personal shift.” The primary causes of this personal shift, which lead to
distressed situations, are:
1. Negative Equity from Market Shifts
2. Unemployment
3. Personal Crisis
4. Consumer Overconfidence
In any of these events or situations, foreclosure is a deeply personal experience.In a shifted market that has become distressed, opinions abound about
why people made the choices they made that contributed to the result.
One example of this opinion appeared in The San Diego Union-Tribune
and has been reprinted in other major daily newspapers. It appeared in the
Austin American-Statesman on May 4, 2009. The commentary is based on
a 2006 book by a San Diego State professor, Jean Twenge, titled Generation
Me. Quoting the book, “People were very overconfident about what size
mortgage they could afford and the same thing affected the bankers who
were giving the loans. Everybody was overconfident and didn’t anticipate
the downside, so when the downside came it was worse than anyone
imagined.”