Why we hesitate to buy, when we should
Why current conditions argue for action - the behavioural economics of buyer’s markets
Photo by Ally Griffin on Unsplash
Have you noticed this pattern? When markets are running hard — clearance rates above 70%, queues at open homes, properties selling 10%+ over guide — buyers are everywhere. The moment conditions soften and the same buyer suddenly has negotiating power, time to think, and vendors who actually want to deal, half of them disappear.
Insane.
Right now, Sydney’s final auction clearance rate is 48.8% — the lowest since April 2020 (Cotality, April 2026). Days on market are extending and price guides are dropping – sometimes mid campaign. Vendors who couldn’t get through to their reserve six months ago are genuinely open to a conversation. And buyer enquiry, anecdotally, has pulled back.
Right when conditions favour the buyer, buyers turn away. Why?
Oddly, it’s predictable human behaviour, and there’s 40 years of robust research explaining exactly why it happens. Understanding the mechanics is useful — because once you see the bias, you can at least choose whether to act on it.
The psychology of the falling market
The foundational work is Kahneman and Tversky’s prospect theory (1979) — the Nobel Prize-winning framework that established a simple but powerful finding: losses feel roughly twice as painful as equivalent gains feel good (this is loss aversion). In a falling market, a buyer’s mental reference point is anchored to the recent peak. Every property they consider gets evaluated against what it would have sold for at the top of the cycle.
Even if today’s price is objectively lower, the fear of it going lower still — however marginally — looms larger than the certainty of having bought well below the peak. That’s loss aversion working directly against your interests.
Add herding to that. Shiller documented in Irrational Exuberance (2015) how housing markets run on narrative as much as fundamentals.
In a rising market, the story is self-confirming: competition at every auction, prices going one way, social proof everywhere. In a softening market, the crowd thins and standing back feels rational because everyone else is doing it. The clearance rate is essentially a live social proof signal — and right now it’s telling people to wait.
Then there’s regret aversion. In a seller’s market, buying feels socially sanctioned — if it goes wrong, nobody saw the crash coming. In a buyer’s market, buying feels like a visible personal call. If prices soften further, you made a choice that can be pointed to, perhaps criticised. You zigged, while everyone zagged. Kahneman and Tversky’s work on status quo bias — the preference for inaction even when action is objectively superior — is the direct theoretical explanation for why smart, financially capable people sit on their hands in conditions that should be moving them to act (Kahneman & Tversky, Science, 1974).
The upgrader’s maths (which loss aversion makes invisible)
For upgraders, a softening market is arithmetically better than a rising one — but loss aversion makes this almost impossible to feel. When both your sale and your purchase decline by the same percentage, the dollar saving on the larger purchase outweighs the dollar loss on the smaller sale. A 5% correction on a $3m sale costs you $150k. The same 5% on a $5m purchase saves you $250k. You’re $100k better off on the transaction before you’ve negotiated a dollar. Case and Shiller (2003) showed that buyers who wait for a confirmed market bottom — signalled by rising clearance rates and renewed competition — consistently miss it: the signals that confirm recovery are the same signals that have already reversed the buyer advantage. By the time it feels safe, the window has closed. The data released has a significant time lag – if you’re using that to guide you, any advantage has already been squashed.
But fewer listings, means less choice
“There’s less on the market, so I’ll have fewer options.” This is the most common reason I hear from buyers who are broadly ready but hesitant. It’s partly true — for example, total listings across Eastern Sydney are running 11.5% below the same time last year (Cotality, April 2026). But it’s also the wrong frame, and here’s why.
The buyers who struggle with low-stock markets are the ones who haven’t done the work on their brief. They’re still broadly looking rather than specifically hunting. The buyers who move well in a thin market are the ones who can answer, clearly and quickly: what are my three non-negotiables, and what am I genuinely flexible on? With that clarity, a market with 40 properties is workable. Without it, a market with 200 properties is paralysing.
People sell houses for a host of reasons – perhaps the vendor is upgrading (taking advantage of market conditions on the vector to upgrade), selling due to changed circumstances – moving for work, divorce, an estate settlement – so quality stock is almost always available and, in a bumpy market, more affordable than before.
Non-negotiables should be structural and irreversible: a minimum land size that makes future value sense, a suburb with genuine scarcity characteristics, a bedroom count that reflects the actual household. Everything else — aspect, condition, street position, presentation — is a preference. Preferences have prices. Once you can see the gap between what you must have and what you’d like, the market has more options than it appears to. And in the current environment, properties sitting at 90+ days on market are properties where the vendor has already heard what the market thinks. That’s a negotiation, not a competition.
What to actually do about it
1. Know what the market feels like vs what it is.
Take Bronte houses, with rising days on market and -10.8% annual change- does it feel precarious? It isn’t — it’s a tightly held, structurally scarce suburb going through a normal price discovery phase. The anchoring bias makes it feel riskier than the data warrants. Check the data, not the mood.
2. Get your finance current, not historical.
Every 0.25% rate rise reduces borrowing capacity by roughly $25,000. Pre-approval from six months ago doesn’t reflect current reality. Know exactly what you can borrow today — it removes the scramble that turns a good property into a missed one.
3. Write down your brief — specifically.
Three non-negotiables, maximum. Everything else is tradeable. This is the single most practical antidote to the stock objection and to the analysis paralysis that kills more purchases than competition ever does.
4. Don’t wait for the bottom.
You won’t see it until it’s behind you. The signals that tell you the market has recovered are the same signals that will have already restored competition and closed the negotiating gap. Case and Shiller’s research is clear on this. Act at a reasoned point in the cycle, not the confirmed one.
5. Go off-market where you can.
It sidesteps the social proof dynamic entirely. No auction theatre, no thinning crowd as a signal to wait. A negotiated off-market purchase in the current environment is a different psychological experience from the one that loss aversion is making you fear – but that negotiation must be delivered with a solid foundation in the current data.
The best time to buy may very well be when the market feels most uncertain. Not because uncertainty is comfortable — it isn’t — but because the behavioural biases that make it feel uncomfortable are working just as hard on every other buyer in the market.
Of course, I can help you zig, while others zag.
References
Kahneman, D. & Tversky, A. (1974). Judgment under uncertainty: Heuristics and biases. Science, 185(4157), 1124–1131.
Kahneman, D. & Tversky, A. (1979). Prospect theory: An analysis of decision making under risk. Econometrica, 47(2), 263–291.
Tversky, A. & Kahneman, D. (1992). Advances in prospect theory. Journal of Risk and Uncertainty, 5(4), 297–323.
Genesove, D. & Mayer, C. (2001). Loss aversion and seller behavior: Evidence from the housing market. Quarterly Journal of Economics, 116(4), 1233–1260.
Case, K.E. & Shiller, R.J. (2003). Is there a bubble in the housing market? Brookings Papers on Economic Activity, 2003(2), 299–362.
Shiller, R.J. (2015). Irrational Exuberance (3rd ed.). Princeton University Press.
Sinha, M. & Shunmugasundaram, V. (2023). Behavioural biases in real estate investment: A literature review. Humanities and Social Sciences Communications, 10, 778.
Cotality (2026). Property Market Indicator Summary, week ending 12 April 2026. RP Data Pty Ltd.
Cotality (2026). Monthly Housing Chart Pack, April 2026 (listings data to 5 April 2026).
Domain / SMH (2026). Eastern Beaches suburb tracker. April 30 and May 3, 2026.
