Why you're afraid to buy a house (and some tips on how to get over it)

It may be one of the world's greatest mass psychology questions of all time: Why aren't people buying houses?

Potential buyers are still looking -- that much has been established by recent attendance at open houses -- compared to a year ago, when most agents were taking home their plates of cookies untouched. And the home-buying public can't possibly be waiting for mortgage loan rates to drop much lower since they are already at their lowest levels in decades. There certainly are plenty of choices in what to buy: Inventories are at high levels and pretty much every seller on the market is ready to make a deal if you would just please be so kind as to make an offer ... any offer.

Even home builders' confidence has dropped for the third straight month as that group blames the struggling economy and the flood of cheap foreclosed properties on the market as the reason people have kept away from their shiny new ones. The National Association of Home Builders said its monthly index of builders' sentiment about the housing market was at 13; readings below 50 indicate negative sentiment about the market. That's one bunch of depressed home builders.

How serious a problem is it? As serious as they come, say the economists. Consumer spending -- including spending on big-ticket items like homes -- is the key to the economy's overall recovery. Consumer spending contributes 70% to the nation's economy.

So why aren't people buying? One answer: They don't want to look like chumps. A chump is the guy who bought his flat-screen TV the day before it went on sale at half-off. A chump is someone who locked in to a cellphone service that he later learned won't work in his house. A chump is someone who buys a house for a dime more than the one next door sells for a month later. Nobody wants to be that chump.

What else stops buyers from jumping in the deep end of the pool?

Not having a down payment, or having it but thinking it could be invested more wisely elsewhere. Edward A. Mermelstein, a real estate attorney and co-founder of the real estate law firm Rheem, Bell & Mermelstein, with offices in New York and Moscow, says people still have a major issue with personal savings. Even if home prices are down from a few years ago, you still need the cash for a down payment. "Most people today want to put their savings into another investment, especially these days when real estate isn't considered the safest investment."

For things to turn around, he said, several positive indicators must exist for the psychology of long-term buying habits to change. The last time he saw signs of this? Between 1992 and 1996, when it took more than three years for a substantial turn-around.

And let's not forget fear of losing one's job. With jobs creation going nowhere fast and the words "unemployment" and "layoffs" heard at least 400 times a day, who in their right mind would commit to such a large investment as a house? Lee Igel, an assistant professor at New York University who teaches consumer behavior, says investing in a family home was traditionally a durable consumer good. But during the past boom, it turned into a capital good. "The downside of that reality -- a house going from a home to something to be bought and- old quickly -- is now being experienced and is precisely what people are afraid of most."

And of course people are afraid that prices may fall even further.

It's all about uncertainty, says Lydia Player of Virginia Cook Realtors. The current economic climate is uncertain and people don't make financial decisions when they feel uncertain: "The logical side of their brain is saying, 'Buy, buy, buy,' but the emotional side is saying 'Wait.'"

She predicts that by the time people start to feel comfortable with buying again, the market will swing on its way back up. There is no perfect timing for guessing when it will be at its all-time lowest. If you are buying a home for your family that you will live in for years to come, does it ultimately matter if you pay a few thousand dollars more than you would have in six months? Right now, with low interest rates, you might actually get a better deal to buy now.

Griff Straw, president of Solidifi U.S. Inc., a technology-based appraisal management company and a mortgage industry veteran, has a more pragmatic answer to why people aren't buying homes today.

"Unemployed people do not buy houses," he says. "Home buyers in today's economic environment not only need a job, but they have to feel comfortable that their job will continue, that they will be employed long term." People's equity in their homes and home values are still down, making it hard for them to even think of selling and moving up.

Create some jobs, loosen up some credit, and help save the economy? Sounds like a plan that, if you will, the housing industry can build upon.