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 . . .


Poll Finds Homeowners Expect Gains to Continue
DOW JONES NEWSWIRES, September 29, 2005; Page D2

What's been said:

Discussions found on the web:
  1. royce commented on Oct 3

    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.

  2. Barry Ritholtz commented on Oct 3

    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 . . .

  3. royce commented on Oct 3

    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.

  4. technofunk commented on Oct 3

    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.

  5. Lord commented on Oct 3

    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.

  6. Norman commented on Oct 3

    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.

  7. anon commented on Oct 3

    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.

  8. anon commented on Oct 3

    … 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.

  9. Aaron Koral commented on Oct 3

    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….

  10. Brad DeLong’s Website commented on Oct 5

    What Do Homeowners Expect

    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?…

  11. Matrix commented on Oct 24

    Consumer Reality Distortion, Or Is It?

    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…

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