Posted on 10/08/2005 2:35:32 PM PDT by wagglebee
Despite fears in the marketplace about a U.S. housing bubble, about 60 percent of homeowners expect the value of their homes to increase by at least 5 percent annually during the next several years, according to an online survey of 1,001 American consumers.
According to the survey findings, released by RBC Capital Markets, the corporate and investment banking arm of RBC Financial Group, 24 percent of respondents said they expect annualized gains of 10 percent or more over the next few years. About 3 percent of respondents said they expect their home values to decline over the next few years.
About 85 percent of homeowners who responded to the survey said they have experienced real estate gains over the last three years and over 70 percent experienced gains in excess of 10 percent during this timeframe, RBC announced.
Meanwhile, about 10 percent of the respondents said rising home values have affected their spending habits. And over half of those surveyed disagreed with the notion that real estate gains impacted their spending even though 51 percent either sold their home or borrowed against their home equity in some fashion. Ironically, those that disagreed most with the idea that real estate gains had impacted their spending were those in higher income brackets (defined as those making over $100,000) and those that had already experienced the biggest real estate gains, RBC reported.
Ultimately, these two groups were also the most aggressive in extracting equity (approximately 65 percent).
"Not only are most people expecting big real estate gains to continue, the vast majority of people don't believe these gains have impacted their spending. These opinions run contrary to most data in the marketplace regarding the real estate wealth effect," said Scot Ciccarelli, managing director of equity research for RBC Capital Markets.
"We believe these findings raise a major question. In our minds, the question is whether people have spent more freely than they otherwise would have because of their real estate gains and don't even recognize it. If that's the case, a simple slowing of real estate gains, not just a fall in housing prices, could have a significant adverse impact on spending patterns."
About 60 percent said rising gas and energy prices were already causing them to cut back on their spending. "Rising energy prices are essentially creating a flat tax that is affecting lower income consumers at a disproportionate rate and supports anecdotal evidence in the marketplace over the past two years that companies more levered towards higher-end consumers have largely outperformed those that cater to lower-end consumers," Ciccarelli said.
Finally, by a 2-to-1 ratio, people are more positive about their personal financial situation than they are on the broader economy. On average, just under 40 percent of respondents were optimistic about their personal financial situation and just over 30 percent were concerned or pessimistic, the survey found.
On the flip side, 20 percent of the respondents were optimistic about the broader economy while just over 50 percent were concerned or pessimistic about the economy.
"Not surprisingly, those that were the most optimistic about their personal financial situation were those in the upper income categories and those that had experienced the biggest real estate gains," RBC announced.
"This outlook seems to cut to the heart of the American consumer. People seem to be conscious of the macroeconomic headwinds facing them like rising energy prices, the war on terror, and the growing federal deficit and the impact it can have on others. However, they are less inclined to believe they can be affected by these same factors. Ultimately, it is this optimism that keeps the U.S. spending engine intact," said Ciccarelli. "While energy prices are certainly disconcerting, it is this real estate wealth effect that we are most concerned about and should be the primary focus of investors."
"you still own something of value as opposed to worthless stock in some defunct dot.com start-up."
Don't remind me!!!! ARRRGGGHHH!!!!!!!!
60 % don't live in california, new york or florida
Bubble? You mean the MSM/Dem "Hate Bubble" concocted to discredit the Bush regime?
Well, that makes sense. Once homeowners believe in a real estate bubble it's no longer a real estate bubble, rather it's a real estate bust.
Hell, I lost a boatload of money when the Nasdaq tanked. My house has more than doubled in the last four years, even if there is a 20% dip, I'll still be way ahead.
Well, if you bought a house last year for $600,000 and in another two years it's only $400,000, you've still lost $200,000 no matter how you look at it. Is my math 101 wrong here?
My wife and I sold our house in S. Calif. recently and moved out of the state. Why? Becuase the equity isn't real unless you take it, and I didn't believe it would be there forever. When I left, only 11% of the people could afford a home in California.
As inflation and interest rises, housing prices will come down. And they will rise, and are rising.
Yep. The same group that was telling us back in the late 90's that it was a great idea to pour money into internet start-ups that had no profits because they had no revenue and they didn't even have a business model that ever projected profitability. But hey, BJ Klintoon and Robert Rubin were telling us that they had "overcome the business cycle" and we may never have another recession.
By the way, there's no bubble where I am now. We took our equity and paid cash for a home in another state: New 3 br 2 ba - $129,000. California housing prices are insane and unsustainable - no other word to describe it. It's so crowded there, it is no longer even a nice place to live. They can have their rat race, and inaffordable housing and gay marriage. Color me gone!
It's alway good to have a roof over your head. Maakes you feel better about yourselve.
Even the times when there have been nationwide dips in real estate, it has always been a relatively small percentage and it has always come back. When the Nasdaq collapsed, many people wound up holding worthless stock in companies that no longer existed, that is simply not the case with real estate.
If we'd all just go out and buy a house, using an interest-only negative amortizing loan if you have to, we'll all be rich someday.
Yeah, that's the ticket.
Throughout human history, houses have always been a negatively depreciating asset. Houses wear out, need maintainance, and fixing, just like a car would.
It's no different today. To the extent that they go up in an area, it's because of market forces-desirability, job growth, income growth, population growth, immigration, inflation, or most importantly, SPECULATION.
Stocks in general are not worthless. They are shares in the real and intangible assets of a corporation. If you are a "homeowner" you're really not one until you pay the mortgage off. With stocks, unlike houses, you cannot lose more than you invested. With a house, you can end up losing all of your investment (down payment) and then some. If you put 5% down, and the house falls 20% in value and you need to sell, you still will owe the remaining balance to the mortgage company.
I heard that the cycle was inevitable because of the way the central banks manipulate the money supply. With a solid currency the cycle would fail to materialize. I cant explain it very well, but that what I picked up from some gurus at a Walsh College get together.
no one is truly a homeowner anyways since the govt. can take it away from you at any time, for practically any reason. If person "B" will pay higher property taxes than person "A" that govt. can take it from "A" and give it to "B." Go ahead and stop paying your property taxes, i.e., your rent to the govt. You'll find out who really owns that property
So what do you suggest people do? Never buy homes?
If you paid half a million for a 500-square-foot condo with the idea of flipping it in a year or two, then you might nto actually own something of value.
Add Connecticut, Massachusetts and a couple of other states to your list.
In Boston/Cambridge prices for real estate are insane. No sane person would pay $325,000 for a 600 sq.ft. condominium with TWO windows and 30 year old harvest gold appliances. That unit went in one day!
The roller coaster can't keep going up.
I don't know when you left, but the affordability index has gone down from 20 to 16% this year so far. Not 11%, but not so good.
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