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."
Just steer clear of Pitney Bowes and you will be fine! :)
"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."
I hear over priced closets don't sell well.
"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."
I hear over priced closets don't sell well.
UNLESS it is in a VERY ELITE location.
The analogy is absolutely inappropriate. I am referring to a simple fact that a dynamical system evolves differently in time when it is controlled and uncontrolled. A falling aircraft may be also viewed as clearing "excesses" of altitude, but changing the position of the throttle allows it to regain altitude, save the life of the passengers and ultimately land safely.
Greenspan delayed the onset of the recession by pumping the economy full of money and credit.
Again, it's like saying that by using fuel an aircraft that took off from the the East coast has delayed landing by six hours: it would've eventually come down to earth anyway. True, but that would be to miss the point of the flight.
Similarly, with the economy: it is controlled by changing the money supply. Since 1982, we had a continuous boom, which did not happen before in American history, and in 2001 had a mild recession. Although cyclicity cannot be eliminated completely --- just like small ups and downs during the flight of an airplane --- Fed certainly helped to smooth the ride.
That being said, I happen to think that there are most surely bubbles out there....some huge, some not so big. Time will tell....
FWIW-
FRegards,
I have figured out that after 15 years buying my house, I will have lived for free even if the market takes a dip. Plus my monthly cost is now about half of what renters pay.
Can't get that by renting my friend!
But unless you live in your stock, you can always sell it high.
The only problem is that real estate is so leveraged. If your mortgage is 70% of the value of your house, and prices drop 15%, you have lost half of your stash, ala the NASDAQ collapse. It is the leverage the gnomes are worried about.
Realistic summary.
Add to that, that we live in very uncertain times.
No telling how long a job, an industry, a career may last.
You got lucky and bought at the right time and in the right place. Long term, it's impossible for everyone to have their house values go up so much that they "live in them for free."
It's simply illogical.
Made Up? I suppose so, but every work must have its Genesis. My own profession for example - "Avionics Technician" would have had no meaning to Mr. Webster when he compiled his dictionary. Nevertheless, it's a real way to earn one's keep and a part of the language today despite being less than a century old. No language (save perhaps Esperanto) sprang full-blown into existence. The words were created to describe things and concepts the speakers dealt with on an everyday basis. New words are created, old words are forgotten, and so it will always be unless the language itself dies.
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Friends and Family shares in the IPO of a now defunct Dot-Com bought my little shack. Geeez, I miss the nineties...(sometimes)
That's what the tyrants would like you to think. Let's say that your house is paid off and you lose your job. You can't afford to pay your property taxes, the rent to your lord-the government. The real owners, the government, will come and take away your house from you. It's a crying shame that you should have to sell your house because you can't pay the taxes on it.
If you really own something, no one can take it away from you for any reason. I don't have to pay any taxes for owning stocks, bonds, gold, or just about anything else.
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No, Hildy, you are wrong. There is no loss if you don't sell and you can live in this investment which is a value as opposed to the loss associated with being a shareholder in a company going bust.
Hate to rain on your happy parade, but the real estate market is controlled by the "MARKET FORCES" not the "happy homeowners confidence."
I don't know how you can say that Greenspan did not overstimulate the economy. Overstimulating the economy can be worse than doing nothing at all.
Even he admitted that there's some serious distortions in the economy. These distortions were caused the by excess money and credit created by the Fed. All that money and credit had to go somewhere and it went into the housing market.
Consumer spending is driving the economy. The increases in consumer spending came about as a result of more borrowing rather than through increased personal income. There's only so long that you can live on borrowed money.
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