Animal Spirits and burning down the house

A guest post from Animal Spirit:

Many of the readers here know of my like (my better half would say addiction) for numbers, especially for experimental data analysis. While the numbers, the ups and downs of house prices, my chastising Marko for his use of the mainly meaningless average, my great thanks for Reid for unknowingly starting our family on a very good financial plan due to his writings on the blog a few years ago and Roger’s spreadsheets are all interesting, the bubble is not really a numeric event, it is instead a human behaviour phenomena. Ergo my alter ego ‘Animal Spirit’.

Animal spirit is a Keynesian term which Wikipedia states: “ describes emotions which influence human behaviour and can be measured in terms of consumer confidence”. Further, in 2009, Akerlof and Shiller published the book “Animal Spirits:  How Human Psychology Drives the Economy, and Why it Matters for Global Capitalism”.  

Robert Shiller then paired with Karl Case in a 2010 publication to attempt to understand the U.S. housing bubble development and bust. Given that multiple major national newspapers, magazines and television stations that had previously been promoting housing as a great investment and buying choice have recently published substantive negative stories may affect confidence in the Canadian residential real estate market, this led me to the following excerpt from the link above:

“It may be in these changes (changing perception and changing information), more than in the quantitative expectations that we have recorded, that most explains the major trends in the market. Figure 16, which gives a scaled count of news stories with the term “housing bubble” in it, shows the major change in public thinking that began around the time when the housing boom of the 2000s first became apparent, and has grown steadily ever since. The story of a housing bubble is an invention of our times, an invention that is spreading to capture more and more of our thinking, and to create a fragility of expectations that was unknown in times past. 

By the time of the 2006 survey, just around the time of the peak in prices, some new themes became commonplace in answers to the question as the event that changed the trend in the housing market. Answers included “reality adjustment of the market,” “fewer speculation buyers,” “media hype of housing bubble,” and “overheated market.”

By the time of the 2009 survey, when the market was starting its sharp recovery, the answers included even more references to speculation and bursting bubbles. People have not forgotten about their newfound knowledge of bubbles. As of the 2009 survey, we could not find any optimistic new themes that indicated a positive major turning point in the market, and are left with the suspicion that the turn upwards in home prices is supported more by the government’s short-term support of the housing market rather than any new speculative enthusiasm.”

How might this apply in Canada now that our national right wing magazine for the masses is publishing pictures of a burning house on its cover (h.t. patriotz, through vancouvercondo.info). Got any good links to sites discussing media impact on consumer behaviour (or a cheap blue bridge)?

Animal Spirit (currently changing from a halibut to a phoenix)