Bailout

Americans get more sensible about housing

By Felix Salmon

Remember Fannie Mae’s National Housing Survey? Well, Fannie has repeated the exercise, just six months later, and chief economist Doug Duncan tells me it might even become more frequent than that, in future.

The general upshot is that Americans might still be delusional when it comes to housing, but they’re less delusional than they were six months ago, which is a good sign.

Although 67% of Americans think buying a house is a safe investment, this is down 3 points from January 2010 and 16 points from 2003 ? the largest declines among all tracked alternatives over both timeframes.

It’s also good news that 80% of renters think they would have to make a financial sacrifice in order to own a home, and that fully 90% of owners think that they’re making a financial sacrifice to own their home. Given that expectations for house-price appreciation are realistically modest, one can conclude that people buying houses today are doing so for pretty good reasons.

There are weirdnesses in the survey: 91% of underwater borrowers, for instance, say they’re satisfied with their current mortgage.

And in the Fannie Mae survey, underwater homeowners are significantly less tolerant of the idea of walking away from a mortgage than their more solvent peers: just 6% of them say it’s OK to stop paying their mortgage, compared to 10% of the population as a whole. That’s in contrast to the latest Pew survey, in which 18% of underwater borrowers — and 19% of the general population — say that walking away is acceptable.

That said, half of the population think that mortgage lenders are likely to pursue other assets, rather than just the home in question, if the borrower walks away. Americans think they’re living in a recourse world, and they’re wrong about that: statistically speaking, lenders almost never chase personal assets in such situations. This attitude is good news for lenders, since it gives borrowers more of a reason to keep on making their mortgage payments. But if borrowers ever waken up to reality, the consequences for banks could be brutal.

There are also interesting divergences between buyers and renters. The proportion of buyers who think that homeownership is important to the overall economy, for instance, rose two points to 82% in this survey, while the proportion of renters thinking the same thing fell a full five points to 72%. And more generally, says Duncan, there’s a divide between renters and delinquent homeowners, on the one hand — who are more pessimistic than the general population, and becoming more pessimistic still — and owners who not delinquent. They are not only optimistic, but becoming more so.

Duncan reckons, after spending a lot of time with the survey results, that a lot of people are putting off buying a home because they’re worried about the future direction of the economy. It’s not so much that they think house prices are going to fall, but rather that they don’t want to take on the huge commitment of making mortgage payments every month for the next 30 years, given the uncertainty surrounding their own personal financial situation.

That bespeaks a lot more financial common sense and responsibility than we saw during the housing market. And so while America is by no means a nation of would-be renters, it’s moving in the right direction.

Full post as published by Macroprudential on September 16, 2010 (boomark / email).