Are Housing Market Fears Overblown?
Nearly half of all Americans believe the housing market is poised to go from bad to worse over the next few years, despite assurances from many real estate forecasters that the market has hit bottom.
The glum outlook, reported in the Experian-Gallup Personal Credit Index, says 47 percent of consumers surveyed at the end of the year believe that the housing bubble is bursting and that real estate prices in their area will likely collapse over the next three years.
Although 51 percent don’t expect an all-out collapse, the pessimistic crowd has increased from 42 percent in April 2006 and 37 percent the year before, MSN Real Estate reports.
“The housing market has been in a downturn for some time now,” says Dennis Jacobe, Gallup’s chief economist. “People are seeing more for-sale signs out there longer… and people are taking their houses off the market. As people talk to each other, the negative psychology builds.”
The bottom line, Jacobe says, is a lot of people don’t believe the housing market is headed for a so-called soft landing despite the predictions of some real estate experts and Wall Street prognosticators.
But clearly there is some debate about exactly when that drop will happen. While they may be pessimistic for the three-year outlook, many respondents are more optimistic about the short term.
Fears of a potential housing price collapse are greatest in the West and East, where price surges were the most dramatic in recent years, with 50 percent of respondents saying they think such a downturn is likely.
Leo Nordine, a Redondo Beach, Calif., real estate agent specializing in bank-owned properties, says the sentiment jibes with what he’s seeing in the once-torrid Southern California housing market.
“I’ve been through a couple of these cycles already,” Nordine said. “And I think this next one will actually be worse. The buyers are controlling the market now.”
Nordine thinks that given how astronomical California mortgage costs have gotten, the market will decline over the next few years, with home prices eroding about 10 percent each year. As prices have softened, many sellers are already pulling their houses off the market.
Meanwhile, another market is heating up: Nordine gets about one new listing a day from mortgage lenders that are foreclosing on properties. ”
We’ve become a debtor nation,” he says.
Indeed, one in four of the consumers surveyed have both a first mortgage and a home equity loan or home equity line of credit. But the amount of home equity being tapped seems to be slipping somewhat, after years of rapid growth.
According to the American Bankers Association, the dollar amount of home equity loans and lines of credit increased at an annualized rate of 14.6 percent for the first three quarters of 2006, compared with a 17.4 percent increase in 2005 and a 31.2 percent increase in 2004.
One thing is clear: More consumers are using these lines to bail themselves out of financial hot water rather than improve the market value of their homes. Just 36 percent of survey respondents with these loans and credit lines said they used them for home improvement loan or renovation purposes, down from 43 percent in April 2006.
A rising number, 17 percent, are using the money to pay off their credit cards and consolidate debt, compared with 14 percent who applied for a debt consolidation mortgage in April 2006.
This kind of additional debt, coupled with the explosion of some more risky types of lending in recent years, is a wild card in the success of the real estate market this year.
As variable-rate bad credit home loans are reset over the next year or so, more consumers across the country could find themselves in hot water, and markets could be scattered with more foreclosures.
If mortgage rates continue to stay relatively low and the economy continues along the same track, one expert says, there shouldn’t continue to be a huge drag on prices. Rather, most markets will see prices soften between 5-10 percent to remedy some of the excess of the past several years.