July 2006
All the real estate bubble talk reported by the media hasn't burst consumer confidence, according to a new study of America's homeowners.
In fact, respondents to ING Direct's fourth annual homeowners study foresee continued increases in home mortgage rates but say they are not
overly concerned.
Seventy-one percent of those polled expect interest rates to increase, while 21% think they will remain the same, according to the national study conducted by Synovate, a global research firm.
On average, homeowners who have owned a home for at least three years feel that new mortgage interest rates will increase 1.6 percentage points over the next 12 months. Fifty percent expect an increase of between 1 and 2 percentage points. Another 16% anticipate a jump of 3 to 4 percentage points.
Most survey respondents (85%) believe their homes increased in value during the last three years. While homeowners felt their homes have increased in value by approximately 6% in the last year, they only expect values to increase by about 4% in the next 12 months.
Homeowners in New England and the Pacific states are more optimistic their home will increase in value than are homeowners in the South and central states, who are more likely to say values remain unchanged.
Of those who have owned a home at least three years, 74% said they were not very concerned that there might be a downturn in the housing market in the next year, which could lower their home's value.
Only 9% of those with a home-value increase during the last three years say the increase has allowed them to spend more than they earn annually. Nearly two-thirds believe a 10% decrease in home value would have no impact on day-to-day spending.
Homeowners are most likely to consider their homes to be an investment or a place to live when they retire. One in four thinks of his or her home as a source of extra income to draw from when cash is needed. Only 8% of homeowners responding to the ING survey say they refinanced in the past three years and received cash back.
The survey also looked at the borrowing experience. Results reinforce the need for lenders to be more forthcoming in the total cost of a mortgage. Respondents who report that closing costs were higher than they expected say the closing costs on their current mortgage were almost $600 more than anticipated.
Real Estate Center Chief Economist Mark Dotzour said the survey shows many Americans are smart enough not to believe everything they see on television, such as media reports that the housing market is about to collapse.
"My advice is that if you are watching the national news media for more than seven minutes a day you are completely wasting your time," he said. "The cable news networks try to increase viewership by creating the 'crisis of the season.'
"Right now, the crisis du jour is the housing bubble. Last summer, it was the hurricane season. What's next? An earthquake-spawned tsunami of flu-plagued birds knocking out Gulf Coast oil refinery capacity?"
Dotzour said that not only is the housing market not tanking, but home price appreciation is a red-hot 12.54% for the entire nation.
"This is still extraordinary price movement," he said. "You have to go back to 1979 to find this level of appreciation prior to the current boom.
"While the nation's inventory of unsold homes was six months in April 2006, homes typically continue to increase in value when inventories are at this level. Texas inventory levels are lower than the national average. With a five-month inventory, Texas homes are likely to continue their recent appreciation trends."
