Polling Homeowners (they do not have a clue)
Jonathan Miller's blog Matrix ("Interpreting the Real Estate Economy") has an interesting post (Consumer Reality Distortion, Or Is It?) outlining a recent WSJ poll on US Homeowners' perspectives and attitudes.
In particular, Miller noted that:
Only 10% of homeowners polled said they believe that rising real-estate values had affected their spending.
85% of homeowners surveyed said they had experienced real-estate gains in the past three years
70% saw gains of more than 10% in the past three years
50% had extracted funds through home equity loans
60% expect home values to rise at least 5% annualy for the next 3 years.
3% expect home values to fall over the next 3 years.
60% said rising energy costs were causing them to reign in spending.
Its fair to observe (as a commentor did at Matrix) that "only 10% said their spending had increased with the value of real estate, yet 50% had taken out loans against their equity. Is there a contradiction here?"
That's more than a contradiction; Its the entire underlying premise for why I believe a) Real Estate has been the key driver to the US economy; and 2) why so many people -- professionals included -- do not have a firm grasp on the underlying economy.
Any subsequent "retracement" will simply catch a majority quite unaware.
Its is all too true: Most people know not their own minds, including their biases and beliefs, their predelictions and prejudices . . .
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Source:
Poll Finds Homeowners Expect Gains to Continue
TARA SIEGEL BERNARD
DOW JONES NEWSWIRES, September 29, 2005; Page D2
http://online.wsj.com/article/SB112795239565355293.html
Monday, October 03, 2005 | 06:37 AM | Permalink
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Barry Ritholtz says that homeowners don't have a clue: The Big Picture: Polling Homeowners (they do not have a clue): Jonathan Miller's blog Matrix ("Interpreting the Real Estate Economy") has an interesting post (Consumer Reality Distortion, Or Is It?... [Read More]
Tracked on Oct 5, 2005 5:29:31 PM
» Consumer Reality Distortion, Or Is It? from Matrix
A survey [WSJ] by Royal Bank of Canadas RBC Capital Markets unit of 1001 consumers found that most owners think their homes will continue to appreciate and the housing boom has not affected their spending patterns.
The results of this surv... [Read More]
Tracked on Oct 24, 2005 10:57:55 PM
Comments
Only 3% think prices will fall? That's such an absurdly low figure it makes me question the methodology. There's got to be more than 3% of the homeowning population who are at least slightly pessimistic about the future.
Posted by: royce | Oct 3, 2005 8:29:22 AM
The survey of 1,001 consumers was conducted last month by Royal Bank of Canada's RBC Capital Markets unit.
Since you raised the methodology concern, I delegate the responsibility of checking it out and getting back to us . . .
Posted by: Barry Ritholtz | Oct 3, 2005 10:37:41 AM
Even if I was skilled in the ways of market research to find the flaw in the methodology, I couldn't help you out there. They didn't post the survey with the press release or get into methodology on their website.
Posted by: royce | Oct 3, 2005 11:00:24 AM
3% doesn't strike me as out of line, based on my very informal conversations with people over the last year or so. Most people seem to subscribe to the "real estate NEVER goes down in value...EVER." belief.
Posted by: technofunk | Oct 3, 2005 1:32:36 PM
I don't think it is actually a contradiction. They probably think they are pulling money out to maintain their spending rather than increasing it. Sort of like expecting your permanent income to be your highest salary.
Posted by: Lord | Oct 3, 2005 2:11:09 PM
But positively, although 70% have seen real estate gains of +10%, 60% think that only 5% gains will occur in the future. The recent stock market bubble had these figures at 20% and 20%. Home owners are actually being very modest in their expectations, not a sign of a true bubble top.
Posted by: Norman | Oct 3, 2005 3:28:17 PM
It's possible that 40% of homeowners who have taken home equity loans have done so in order to consolidate all their extraneous credit card debt.
This may not mean that the economy is any healthier, but it would mean that they are accurately reporting their behavior.
Posted by: anon | Oct 3, 2005 3:54:10 PM
... er, I meant 80%, of course.
Another possibility that may affect interpretation: I wonder how many people have spent home-equity loans on home improvements that they believe have added disproportionately to the value of their home and therefore "cost nothing"? In this situation they could *believe* themselves to be accurately self-reporting no increases in personal spending.
Posted by: anon | Oct 3, 2005 4:20:27 PM
The data makes me wonder how the other 50% "extracted funds" from their homes, if not through home equity loans? My guess is that maybe homeowners are taking out second mortgages like ARM's (?) to improve their homes' value, and thus, do not believe that the value should fall in the next three years. It should be interesting to see how rising interest rates will affect borrowing for future home improvement projects. Only time will tell, and I could be wrong, though....
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