I came across an interesting study that explores real estate and mortgage preferences based on personality type (thanks WSJ).
Whether you realize it or not, your temperament determines whether you’re more likely to rent or buy a home, what type of mortgage you’ll take out, and how much you might put down on a home.
Of course, you need to have money to make any of these decisions, but there does seem to be some empirical evidence that the choices we make in the real estate world are tied to our personalities.
The paper, titled, “Real Estate and Personality,” highlights the Big Five personalities:
– Extraversion (versus introversion)
– Agreeableness (versus antagonism)
– Conscientiousness (versus lack of direction)
– Neuroticism (versus emotional stability)
– Openness (versus closedness) to experience
Take a moment to pick one of the five, if you can. Personally, I see some overlap among the “Big Five,” and it also depends on what day it is, or the situation.
That being said, it’s difficult for me to pick just one, so let’s continue on. Perhaps that makes me neurotic! Kidding. Maybe.
If you happen to think of yourself as an extrovert, which is generally a good thing, you are probably sociable, energetic, adventurous, and outgoing.
Unfortunately, the study didn’t find any positive correlation between extraversion and the real estate-related preferences examined. I guess it’s too much of a mixed bag.
However, it did find that the tendency to prefer stock over real estate investments negatively correlates with extraversion.
If you believe you’re agreeable, that is, you tend to go with the flow, there’s a good chance you’re lying. Or delusional. But if you really are, you likely prefer real estate over stock market investment because it’s a long-term investment choice, which positively correlates.
Such forgiving, undemanding, warm, sympathetic individuals tend not to like risk. In other words, you prefer buying over renting, fixed– to adjustable-rate mortgages, and lower loan-to-value levels.
The conscientious are described as “not careless,” or lazy, and certainly not impulsive. That would explain why they prefer the same things as the agreeable types.
Digging a little deeper, they apparently have the ability to delay gratification, meaning they can go with a shorter-term mortgage, such as a 15-year fixed that carries larger monthly payments.
During the shorter mortgage term, they may not be able to splash out on other items they desire, but they’ll be free and clear a lot faster than the rest. Good thinking!
How about us neurotic types? You know, the control freaks. As one might expect, the results are similar to the agreeable individuals, perhaps because control means less risk.
That means homeownership over paying rent (to insure against home price fluctuations), fixed mortgages instead of ARMs, lower LTV levels (lower default risk), and real estate as opposed to stock investment. No surprises there.
Last are the open types, the curious, imaginative artists we all know and love. While they may seem open to anything, they still prefer long-term investment choices like real estate to stocks. Homes are illiquid investments, unlike Apple stock.
So a lot of different personalities make the same basic decisions, but for slightly different reasons.
The paper was written by Danny Ben-Shahar and Roni Golan for The Alrov Institute for Real Estate Research, Recanati Business School, at Tel Aviv University.
A second study by the same researchers lined up personalities by region and found that open states like South Carolina preferred fixed mortgages, while agreeable states like Tennessee were big on owning.
In neurotic states like New York, lower LTVs were preferred to maintain some semblance of control.
Professor Ben Shahar noted that results may vary, but warned an individual’s personality can have real consequences on their life decisions.
(photo: Alan O’Rourke)