Seven in 10 Consumers Expect Housing Bubble to Burst

Gallop Poll ^ | 4/19/2006 | Dennis Jacobe

[ex-Texan]

The Commerce Department reported Tuesday that single-family housing starts fell 12% last month. Privately owned housing starts fell 7.8% to the lowest level since March 2005, while new building permits fell 5.5%. * * * Labor Department reported that wholesale prices rose 0.5% last month as oil and gasoline prices are approaching new record highs. * * *

New findings from the April Experian/Gallup Personal Credit Index survey suggest that many Americans believe [the housing bubble may burst] * * *

National Housing Bubble

Seventy-one percent of consumers believe it is very likely (24%) or somewhat likely (47%) that housing prices will collapse in housing markets across the nation as a whole within the next year, according to the April Experian/Gallup Personal Credit Index survey. * * *

Housing has been one of the key drivers of economic activity in the United States over the past several years. Building new homes not only creates jobs but also stimulates the purchase of a variety of consumer durables including appliances and home furnishings. More importantly, the growth of housing equity has had a pronounced wealth effect not only on consumer spending, but also on consumer borrowing.

Currently, the housing sector is under assault from the double-whammy of increasing interest rates and surging energy prices. * * *

The most significant impact, however, may involve the effect of a housing slowdown on the overall U.S. economy. A significant economic slowdown during the second half of this year could lay bare many of the housing finance excesses of the past several years. In turn, this could make the pessimism 7 in 10 consumers have about the potential for a bursting of the housing bubble seem prescient later this year.

View Gallop Poll Data and Graphs:

[ARealMothersSonForever]

I fully intend to scoop up some real estate when over-leveraged people have to sell low. The whole "buy low, sell high" thing really does work. Nobody is forcing people into interest only, ARM's, or reverse mortgages. Just like nobody forces people to purchase stocks or bonds. People get to do the research, or pay somebody to do the research. Just like the speculators on oil are going to get burned, some people get burned from being greedy or stupid. If that brings misery to people, who made their own decisions without a gun to their head, it is really too bad. Do not misunderstand this for condoning illicit behavior or scams. But I do not see how real estate lending is a scam. I have closed two deals this year, and there are dozens of pages of "truth in lending". Anyone that does not use a reputable agent and title company is setting themselves up. IMHO.

[Proud_USA_Republican]

anyone remember about 14 rate hikes ago, when greenspan was saying ARM loans were a good way to go?

Ouch!

[NHFREE]

Home prices are down in the greater Boston area close to 12% in the last 9 months. The bubble is already here in "some" regions of the country.

[Proud_USA_Republican]

I'd say considering how high prices have move the past couple years, prices would have to drop by at least 20% or more for it to be considered a collapse of any kind.

[RegulatorCountry]

Ex-Texan, if you didn't come across like Charlie Brown, awaiting the Great Pumpkin, you might find that you'd receive less ridicule. As far as repetition, it's you who has a deepseated need to reassure yourself that "there IS a housing bubble, there IS a housing bubble," complete with links to your own website, or better yet, a blog supported by Google Ads, advertising houses for sale in Portland.

Oh, and the "keyword victim" thing is rather transparent, too.

[ex-Texan]

March 4, 2004, Greenspan personally told people to use ARM loans.

http://biz.yahoo.com/pfg/e03greenspan/

[ARealMothersSonForever]

That's why I live in a Big-Ass Gold House.

Pretty durned funny! This looks a lot like the 1998-99 battles over the dotcoms and tech. The shorts ruled for a few months, when we could shake confidence from someone. I disagree about the housing market popping, because it is based on tangible assets and not future options. It is neat to see the same techniques applied by people looking to "short" real estate. The gloss is gone from REITS, but there is still some sub-prime opportunity. Good luck.

[TheLion]

The housing market is tied to employment. I live just west of what is called Northern Virginia.

Feb. 2005 sales in Northern Va. were 7800 houses. Feb 2006 the number was 7000. Prices are still going up but it takes a little longer to sell.

Employment is expected to increase strongly.

Location, location, location.

[newzjunkey]

Admit it: you just want her to move away! ;)

[ex-Texan]

REIT insiders sold off their stock six months ago. They made a killing. As for the opportunity presented by sub-prime lenders, that is another group to be cautious about. Those people are going to suffer the most:

http://www.businessweek.com/magazine/content/06_17/b3981065.htm

[truth_seeker]

"March 4, 2004, Greenspan personally told people to use ARM loans."

Here is a FACT: For the last 20 years ARM loans have given people LOWER house payments, than fixed rate mortgages.

Reason: They took the RISK, and reaped the benefit of a low interest rate environment.

A few further facts:

1. Actually buying foreclosure properties takes a lot of knowledge, and the financial ability to pay cash in most cases.

2. Properties which are taken back by lenders will be marketed by same at full market prices.

3. Real estate is a long term deal.

[GSlob]

I tend to agree with you, but I would add the time element: I'd say [absolutely arbitrarily] that a drop of >30% with a recovery time of longer than 5 years to the present levels would be a collapse, and probably a collapse would take more than that. Do we call DOW drop from March 2000 a "collapse"? From 12000 to 7500 [37% drop] and now back at 11300 - all numbers rounded. Either a smaller drop or a shorter recovery could be classed as a hiccup.

[ex-Texan]

The option ARM loans being advertised locally use teaser rates of 1% and 2.5%. With the lock in rate set in three years at 6.8% APR plus hidden costs (works out to about 7.3% APR). On a $ 300,000 loan that means the buyer is deferring as much as 5.8% of unpaid interest a year. That means that each year the buyer pays the minimum the lender is adding $ 17,400 to the balance owed. In effect, the buyer has a negative amortizing loan. In three years, he will owe about $ 350,000 on his home.

What does the buyer do in 2008 when his house is worth only about $ 225,000?

[antceecee]

You remind me of a hyena waiting for the lions to finish their work on a freshly killed carcass... I would wish you good luck, but profitting off the misery of others is a sin in my book, sorry. I realise that thisv is my value system not yours.

[montag813]

The economy is rockin', the stock market is about to undergo a 5-year boom, and the spineless GOP is about to make 36 million aliens into citizens and will likely follow that up with homeowner subsidies (sorry, no white guys). Housing prices may cool this year, but they wont fall for long. The fundamentals are super strong. This is not France.

[montag813]

Should say "7 in 10 Americans recall seeing obsessive media coverage about the supposed 'Housing Bubble', and became worried about it".

[Redcloak]

3 in 10 must live in L.A..

[ARealMothersSonForever]

That is the point. REITs got pillaged, but nobody had to force a distress sale. Why is that? I posit that the asset still had adequate market value. People are not mailing in their keys because they can not make their ARM flex payment. Fannie Mae and Freddie Mac have been scrutinized, and the gut check is factored in. No Enron-like activities were indicated and the market chugs along. Home improvement spending is still at very high levels, even with new construction tapering down. The manufactured housing bubble along the gulf coast had an impact, and some folks are sliding mobiles in to rural property. Recreational and second home purchases are still common. As long as overall economic activity remains solid, it just does not make sense to see a total market correction of more than 8-10%. I just do not see it.

[ex-Texan]

You live in Texas, not California. Big beautiful homes with 2 acres of land sell in your state for about $ 200,000. In Los Angeles, tiny two bedroom houses in South Central are selling for $ 550,000. Good money making opportunities are still available in Texas.

[ARealMothersSonForever]

I do not cause people to be miserable. On the contrary. People cause themselves to be miserable with decisions that they make. The hyena is an important part of the "economy". Just like the vulture and the maggots. The lion gets the "lions share" because he invests the greater effort, and takes the bigger risk. I am a little more risk averse, or disciplined. The thing you do not see on Wild Kingdom is how many prey animals get wounded and straggle off to the periphery.
I do consider it a sin to lie, cheat, or steal. I do not consider it a sin to offer an over extended or over leveraged person a legal and ethical option.