Increasing Pessimism Over Home Prices

By:
Peter King | November 30, 2010

Americans are growing increasingly wary of the housing market, with declining numbers saying they think now is a good time to buy a home, despite depressed prices and record-low mortgage rates. 

The number of Americans who think it’s a good time to buy a home has fallen two percentage points since June, to 68 percent, while those saying it’s a bad time rose three percentage points. Only one-quarter think housing price will rise over the coming year, down 6 percent since June, while 22 percent expect prices to fall even further, up 4 percent.
 
The figures are from the Fannie Mae National Housing Survey for the third quarter of 2010, recently released.
 
"Consumer attitudes toward buying a home are more negative since last quarter," said Doug Duncan, Fannie Mae chief economist. "Our survey shows that Americans' declining optimism about housing and their personal finances is reinforcing increasingly realistic attitudes toward owning and renting."
 
The long-held notion among Americans that buying a home is a safe investment continues to erode. Although nearly two-thirds, or 66 percent, continue to hold this traditional belief, that percentage dropped another 1 percent since June, is down 4 percentage points since January and is down 17 percentage points from the number who held that view in 2003.
 

Most expect mortgage rates to stay unchanged or decline

 
A plurality of Americans expect that mortgage interest rates will increase over the next year, which would tend to make the present a more attractive time to buy a home. However, those with that view are outnumbered by the combined number of those who think rates will stay the same or decline.
 
To be sure, the percentage of those who think it’s a good time to buy a home is up 4 percent from January, even though it declined in the most recent quarter. The approaching deadline for the homebuyer tax credit may have boosted consumer attitudes in the second quarter, although that would not seem to account for consumers’ more pessimistic views about the direction of housing prices in the near future.
 
Americans in financial trouble themselves are more likely to know someone who has already defaulted on a mortgage. The survey reports that 42 percent of Americans overall know someone who has defaulted on a mortgage, a figure that rises to 58 percent of underwater borrowers and 63 percent of delinquent borrowers. Delinquent borrowers were found to be nearly three times as likely to consider stopping their own mortgage payments if they knew someone who had already defaulted.
 
Overall though, Americans are expressing cautious optimism about their personal finances, with 82 percent saying they expect their finances will improve or stay the same over the next year, split evenly at 41 percent each.
 
The survey was based on more than 3,400 telephone surveys with randomly chosen adults and a small subset of randomly chosen delinquent homeowners conducted from July 5 to October 4, 2010.

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