Economic Attitudes and Their Effect on Home Sales

The way consumers feel about the economy plays a large part in the housing recovery – or non-recovery, but overall concern doesn’t seem to quite as strong as one would expect at first glance.

A National Housing Survey conducted by Fannie Mae this summer found that up to 70% of the population believes that the U.S. economy is on the wrong track. This leads to pessimism, concern about job security, and reluctance to commit to debt.

But while we think recovery efforts are misguided, are the majority of us really that worried about our personal finances?

This past April – June, Fannie Mae conducted a telephone survey of over 3,000 people. That survey revealed that while the majority think the economy is going the wrong direction, only 26% were concerned about job security. Of this group, 65% still view this as a good time to buy a house. In contrast, of those who are not concerned about job security, 76% think now is a good time.

If you do the math, you’ll see that overall, 73% of Americans think now is a good time to buy a home.

So why are they waiting? Perhaps they believe they have plenty of time to wait and see what happens next. Only 26% expect home prices to rise over the next year, and few expect interest rates to rise.

In keeping with national statistics, 26% of respondents reported that their mortgage is underwater. 42% of those borrowers are stressed by their debt, and 9% have considered defaulting on their mortgage loan. Overall, only 4% of all mortgage borrowers say they’ve considered defaulting.

When discussing changes from last year, the numbers who reported higher debt (16%) vs. less debt (19%) and an improving financial condition (25%) vs. a worsening condition (26%) were surprisingly balanced.

Looking at the difference in overall financial condition between homeowners and renters, it is the renters who report the greatest improvement: 36% against only 18% of homeowners. Not surprisingly, homeowners who are underwater were more likely to report that their financial situation had deteriorated.

Pessimism seems to rule when it comes to the economy – only 39% of those interviewed expect their financial condition to improve over the next year. This may be why consumer spending almost ground to a halt during the second quarter of 2011. Consumers simply don’t want to take on more debt when they are unsure about having the money to pay those bills.

Renters of single family homes have slightly different opinions about the home ownership than those who dwell in multi-family housing. 74% of the single family renters believe that owning a home is more sensible than renting, while only 68% of the multi-family residents hold that belief.

However, well over half in both groups say they will continue to rent rather than buy the next time they move.

As you’ve seen, it’s not because they don’t believe in home ownership. It turns out that 70% are pessimistic about their ability to obtain a loan, so probably won’t even make the attempt. Respondents cited reasons including debt, down-payment, income, job security, and credit history as blocking their way to home ownership.

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