Forget the negative national savings rate and huge trade deficit,
let's ask homeowners what they think!
Homeowners Expect Prices to Keep Rising
By Tom Petruno and Kathy M. Kristof, Times Staff Writers
March 8, 2006
Americans remain largely optimistic that home values will keep rising in the next few years, but some are concerned that they won't be able to keep up with their mortgage payments, according to a Los Angeles Times/Bloomberg poll [snip].
Given the ramifications of a major drop in real estate values, what did they think `the answer' would be?
I came up with the same answer and I didn't have to make 2,563 phone calls to get there [duh!]
If we were to use this poll as a mirror, a reflection of our society's mental grasp of the current economic situation in our nation, what will we find?
Homeowners' views in the new nationwide poll show widespread faith in the real estate market, despite signs that prices and sales are cooling. The median price of existing U.S. homes sold in January was $211,000, down from a record high of $220,000 in August.
In the Times/Bloomberg poll, nearly half of homeowners expected the price of their primary residence to rise 5% to 15% over the next three years. Twenty-five percent expected appreciation of 16% or more in that period.
Just 5% predicted no price increase.
The percentages here add up to 80%. Could we assume the remaining 20% think values will decrease even if their `opinion' was omitted?
We can assume whatever we want but let's run with 20% unaccounted for and press on. This piece quotes six citizens, one `investor' and five regular homeowners on their thoughts about the real estate market but not one of them addresses real estate as it truly is, one piece in a much larger picture.
Not usually included but available here is an `excerpt' of the poll with an interesting `disclaimer' at the end:
To the poll:
(BEGIN TEXT OF INFOBOX)
Asked of homeowners in a nationwide Los Angeles Times/Bloomberg poll:
Q: How much do you believe your primary residence will appreciate in value over the next three years?
Expected appreciation: 5% to 15%
Percentage of respondents: 49%
*
Expected appreciation: 16% to 30%
Percentage of respondents: 19%
*
Expected appreciation: 31% or more
Percentage of respondents: 6%
*
Expected appreciation: Less than 5%
Percentage of respondents: 12%
*
Expected appreciation: Won't appreciate
Percentage of respondents: 5%
*
Expected appreciation: Don't know
Percentage of respondents: 9%
Half of those polled are optimistic while another quarter are downright bullish. This makes three out of four people who obviously don't understand the mechanics of economics.
Prices are demand driven. When the money to buy homes dries up (usually as interest rates rise) the `demand' for homes drop, which in turn lowers prices.
In an interesting parallel, seventy-five to eighty percent of the population also professes a strong belief in God, which roughly corresponds with our number of housing optimists...coincidence?
Does this poll indicate a majority of our society values faith over facts?
--
Optimism, and concern, about housing
Q: If you were given $1 million to invest today, where would you invest most of it?
Real estate: 36%
Mutual funds: 13%
Stocks: 12%
Bank accounts: 7%
Would diversify: 6%
Bonds: 6%
Gold: 4%
Other investments: 8%
Wouldn't invest it: 2%
Don't know: 6%
Um, what does having a million dollars drop in your lap have to do with the real estate market? I don't know about the rest of you but if a million dollars fell into my lap there would be very little left over after taxes and paying off my debts...although paying off the mortgage COULD be construed as `investing' in real estate.
Is it interesting to note that put some aside for the kid's education wasn't one of the options or would that fall under `other investments' with a mere eight percent of responses?
Asked of homeowners with adjustable-rate mortgages:
Q: How confident are you that you will be able to make your payment if it adjusts upward in the future?
Very confident: 55%
Somewhat confident: 19%
Not too confident: 21%
Not at all confident: 5%
Again we have the 75/25 split with most having `faith' in their continued ability to pay...Wonder what the split would be if we asked these same people about their job security? Should remain the same, right?
Asked of property owners:
Q: How much of your family's overall net worth is in real estate?
50% or more: 56%
26% to 49%: 24%
Less than 25%: 13%
Don't know: 7%
Net worth is a bizarre measurement to say the least since it includes the face value of life insurance you carry, a benefit you never see because you have to die to collect it...
What the responses to this question say to me is that our core 75% of respondents figure that their home is their single largest asset...even if they have hardly any equity.
The reality here is most people have no clue what their true net worth is. Only seven percent answered honestly.
Asked of those who have tapped the equity in their home over the last two years or are considering tapping their equity:
Q: What did you use the cash for, or what are you considering using the cash for?
Home improvement/repairs: 40%
Pay off other debts: 30%
Car or other vehicle: 23%
General spending: 6%
Education expenses: 4%
Investments: 4%
Medical expenses: 4%
Houston we have a problem...these figures add up to one hundred and eleven percent! We can ignore that and look at another issue that springs to mind, most people tap equity for more than one reason so the `percentages' here are likely skewed...remember these people are talking to a stranger on the phone about their personal finances...how honest would you be?
We finish with the `Disclaimer':
Notes: Results are among adults polled nationwide. Some answer categories are not shown.
Poll results and full question wording are available at http://www.latimes.com/... .
How the poll was conducted: The Los Angeles Times/Bloomberg poll contacted 2,563 adults nationwide by telephone Feb. 25 through Sunday. Included were 752 households with incomes of more than $100,000. Among them, 712 were investors. Telephone numbers were chosen from a list of all exchanges in the nation, and random-digit dialing techniques allowed listed and unlisted numbers to be contacted. Multiple attempts were made to contact each number. Areas that have a majority of households with incomes of more than $100,000 a year were contacted in separate random samples to allow more accurate analysis of that subgroup. Adults in the entire sample were weighted slightly to conform with their respective census proportions by sex, ethnicity, age, education, national region and probability of selection. The margin of sampling error is plus or minus 3 percentage points for the entire sample; for investors in households with incomes of more than $100,000, it is 4 points. For certain subgroups, the error margin may be somewhat higher. Poll results may also be affected by factors such as question wording and the order in which questions are presented.
So we have just four questions that, to me, indicate a large majority of respondents do not understand economics or the state of the economy...how useful is that?
Useful if we were attempting to see if `Pollyanna' is alive and well, this poll indicates she most certainly is!
But what does this say about the national level of cognitive dissonance in our society?
I'd like to point out that only sixty-seven percent of our citizens `own', the balance rent and no renters were polled.
Again, the disclaimer admits households with incomes in excess of one hundred thousand a year were `targeted' so it is not known how many of the respondents come from the lower income strata who face a rather different economic reality...
Let's conduct our own poll to see what the kossacks think of the housing market. I'd also like to hear your thoughts on the `validity' of this LA times piece.
Thanks for letting me inside your head,
Gegner