Out of touch with realty reality(ZT)

CNNMoney.com
Out of touch with realty reality
Thursday June 21, 2:31 pm ET
By Les Christie, CNNMoney.com staff writer

Despite turmoil in the housing markets thatincludes record foreclosure numbers, mortgage rate increases and homeprice depreciation, homeowners don't believe there's a real estateslump, according to a new poll.

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Most- 55 percent - are confident that their homes continued to increase invalue compared with a year ago, according to a nationwide telephonesurvey conducted this month by The Boston Consulting Group (BCG), abusiness and management strategy firm.

The overconfidence ofhomeowners doesn't jibe with the findings of most home-price indices,which point to lower median single-family house prices of about 2percent nationwide.

"Americans [are] positive about their homes'value and believe in a bounce-back in residential real estate overall,"said BCG Senior Partner and consumer spending expert MichaelSilverstein.

74 percent of the survey respondents said they wereconfident that they could sell their home within six months at theprice they think it's worth.

Inventories are increasing in manymarkets, however - listings now spend an average of more than sevenmonths on the market, up from five or six months last year.

Lookinglong-term makes homeowners even more optimistic: 85 percent believetheir home will rise in value during the next five years, and 63percent believe a house is a good investment.

The perception gapbetween what Americans believe and the current housing market realitycan influence their behavior. According to Silverstein, most homeowners(76 percent) have not, for example, pared back their consumer spendingin response to current market conditions.

Real estate price gainsbankrolled much of the consumer spending of the past few years.Homeowners tapped into rising home values through home equity loans andlines of credit and cash-back refinancings.

According toeconomist Dean Baker, of the Center for Economic and Policy Research,in doing so they added mortgage debt in the first quarter of 2007 at anannual rate of $510 billion. The ratio of equity-to-home-value stood at52.7 percent, a record low. Home price declines, of course, alsocontributed to the drop in home equity.

Not every homeowner is sooptimistic - the survey found that 16 percent have cut back spending asa result of lower real estate values.

But the majority seem blithely positive.

"Consumers don't view blips in overall housing prices as a catastrophe," said Silverstein.

Indeed,69 percent reported that they're confident enough that they are likelyto renovate or make some improvement in their home during the next 12months, and 27 percent said they are likely to be moving on up, if notto the East Side, at least to a better house sometime in the next fiveyears.

Many of the survey respondents appeared to feel that badthings happen to other people; 49 percent were concerned that there wasa moderately severe impact on the overall U.S. economy from theweakening housing market, and 12 percent said it was not hurting theeconomy at all.

A majority - 52 percent - said the currenthousing slump would end within two years. There, they seem to agreewith housing industry insiders such as Lawrence Yun, economist with theNational Association of Realtors and Doug Duncan of the MortgageBankers Association.

Their organizations also tend to be optimistic about most housing-market matters.