Spencer Rascoff - Zillow Talk: The New Rules of Real Estate

In 1990, when I (Stan) was a Peace Corps volunteer in Benin, an Ohio-sized nation in Sub-Saharan Africa, my housing accommodations were not exactly what you would call luxurious. For a while, I lived in what was essentially a construction site. The house I stayed in had a roof and parts of walls but it clearly was a work in progress. Every time Mr. Sana, the owner, had a few extra dollars, he would buy another batch of bricks and build a little more. By the time I left Benin, the house was mostly finished. The walls literally had gone up around me.

At first, I wondered why Mr. Sana hadnt waited until he could afford enough bricks to build the whole thing at once. But as I got to know more about West African culture, his reasoning finally dawned on me. Like many people in West Africa, Mr. Sana didnt like his cash lying around. Thats because, in this society of close-knit families and tribes, people arent shy about asking for loans and gifts, and local custom makes it very difficult to say no. If Mr. Sana had put his money into a savings account, his family and friends likely would have depleted it. It was safer to convert his cash into bricks and start building, even if he didnt initially have the funds to complete the house.

Homes are certainly an important economic asset but theyre also a highly personal one. Mr. Sana taught me that. Real estate has an emotional dimension that other investments like stocks or mutual funds do not. When youre buying or selling equities, youre guided by financial sensibility, plain and simple. But when youre buying or selling a home, other considerations come into play, like family situations, emotional attachments, and even cultural expectations. Mr. Sanas half-finished walls are the perfect illustration of how unique personal circumstances often shape real estate decisions. And thats equally true in rural Benin and in suburban Seattle.

In 2001, my wife and I moved from Charlottesville, Virginia, to Washington state with our two kids. Since we didnt know the Seattle area very well, the right thing to do would have been to rent for a while and familiarize ourselves with the surrounding neighborhoods before making the commitment to buy. But we had just moved across the country and it was more important for us to have a home of our ownany homethan to have a perfectly located one. Objectively, it wasnt the smartest move, but for our family, at that moment in time, buying a home right away was definitely the way to go.

We looked at almost forty houses in three days. Coming from Virginia, we found Seattle home prices a bit of a shock. At the time, the average home in Seattle was worth $220,000. In Charlottesville, it was just over $150,000.

I remember one house we saw in our price range that didnt even have a front dooryou had to enter through the garage. Id spent years thinking about how cool it would be to take my parents on a tour of my first home. But the thought of showing them a house with no front door, taking them in through the garage, and then telling them the place had cost much more than the home prices they or I were used to just didnt seem right.

So we found another housethis time with a front door. After two years, we sold it at a profit and bought a new one. We were living in that second house in 2008 when the economy tanked and the real estate market plummeted. With home prices crashing around us, I started thinking about how to minimize our own losses. Like Mr. Sana, wed converted our money into bricks, and I wanted to protect our investment.

From my perspective as an economist, it seemed like the best move was to sell our house before things got any worse, rent until the market bottomed out, and then purchase our next home at a rock-bottom price. But my wife reminded me that, while selling, renting, and buying again might make good financial sense, it was a pretty terrible idea for our family. By then we had three kids, and uprooting them twice simply wasnt worth it. In our case, the downside of moving far outweighed any potential financial benefits of my scheme to sell, rent, and then buy low. Even during a time of dire economic circumstances, our house was still more than just a financial asset. It was our home.