Faith in home values persists
Americans are worried about the economy and believe that a recession is looming, but their faith in real estate remains fierce, according to a Los Angeles Times/Bloomberg poll.
Nearly a third of those polled predicted home values in their neighborhood would increase in the next six months. Only 16% anticipated a decrease. The rest said values would hold steady.
Call it foolish faith or bold optimism, the forecast is at odds with the downward trend of home prices.
The National Assn. of Realtors recently reported that prices fell 2.7% in the last three months of 2006. Many economists expect real estate to have a rough ride this year, partly because of rising mortgage loan defaults.
Scott Richard Wallace, a San Diego carpenter, doesn’t share that view. “Housing is always a good investment,” he said in an interview after the poll. “I don’t see it ever losing.”
Real estate aside, however, the poll of 1,373 adults reflected widespread unease about the U.S. economy.
Most experts, including Federal Reserve Chairman Ben S. Bernanke, say there’s little chance of a recession.
Americans have a much bleaker outlook. Sixty percent of the poll respondents said a recession was somewhat or very likely within the next year.
Two-thirds said they thought the country was “seriously off on the wrong track.” This is down from 70% in a similar poll last month but otherwise the highest in 12 years.
“I see prices keep going up -- gas, produce, groceries, heating oil, electricity,” said Martha Flynn, who lives in Chicago. “People are struggling.”
Flynn, 47, said she had last been employed by a bank but hadn’t worked in two years. “I don’t think there’s going to be a middle class anymore,” she said. “You’re either in poverty or upper middle class.”
Economists say such sentiments often foreshadow trouble to come.
“Turning points are hard to catch,” said Jared Bernstein of the liberal Economic Policy Institute. “A lot of time, people on the ground feel the economy’s weakness before officials see the signals and declare a recession.”
The last time the recession question was asked in a Times poll, in December 2000, 64% of respondents said a downturn was likely. Three months later, a recession began.
Officially, the economy is slowing but remains in reasonable health. The unemployment rate in March matched its lowest level in six years. Hourly wages are finally outpacing inflation. The stock market, always a barometer of mood, is buoyant.
But fewer people seem to feel it.
Thirty-five percent of the respondents said their personal finances were “shaky,” up from 30% in March and 28% in January.
In January 2006, 38% of Times/Bloomberg Poll respondents used that adjective. With that exception, the current level of unease is the highest in Times polls since the bleak early 1990s.
At the lower end of the income scale -- those in households earning less than $40,000 a year -- 54% said they weren’t feeling financially secure.
When broken down by race, worries were greatest among blacks, more than two-thirds of whom rated their finances as “fairly shaky” or “very shaky.”
Anxiety might be widespread, but it is by no means universal. Even as economists’ predictions about the housing market have darkened over the last five months, people’s expectations have brightened.
In December’s Times/Bloomberg poll, 26% predicted the value of houses in their neighborhoods would go up over the next six months. In January, 27% did.
In the new poll, which was conducted April 5 through Monday and has a margin of sampling error of plus or minus 3 percentage points, 32% expect an increase.
Stan Smith, a retired minister in Eagle Rock, believes that borrowers have become overextended. He thinks the housing market will collapse. Eventually.
“The values are so inflated. It’s ridiculous,” said Smith, a renter. “But people are willing to pay the prices to live in certain areas. They want what they want, and they want it now.”
Housing experts were a little puzzled by the enthusiastic attitude of some respondents.
“Mortgage credit is clearly tightening, affordability is not good and there are a record number of unoccupied homes for sale,” said Scott Simon, a mortgage-bond fund manager for Pacific Investment Management Co. in Newport Beach. “We think prices should be down a few percent this year and, if we are wrong, it will be worse than that.”
The poll respondents narrowly favored government aid for low-income buyers facing foreclosure, 50% to 41%. Black respondents were strongly in favor, 85% to 12%. The rising tide of foreclosure is expected to hit African Americans especially hard, and civil rights leaders have urged government intervention.
David Poulnot, an insurance agent in Charleston, S.C., is not an advocate of aid. Many people may be just one misfortune from disaster, he said, but what they really need is more discipline.
“TV and magazines make the good life look wonderful,” said Poulnot, 49. “If you didn’t get raised properly, it’s easy to fall prey to wanting more than you can afford.”
Not him, though.
“I drive a 5-year-old Chevy Tahoe, my wife drives a 6-year-old Ford Expedition, and if my son goes to Virginia Tech he’s going to have to pay for half of it,” Poulnot said. “But I’m not going to blame George Bush. I think he’s doing a pretty good job.”
Poulnot was in the minority on that as well: 57% of the respondents said they disapproved of President Bush’s handling of the economy. Yet Poulnot said he didn’t see home prices coming down or even flattening. Instead, he predicted a “normal” rate of increase.
The fate of the broader home market is linked to that of borrowers who bought or refinanced their homes with sub-prime loans because they couldn’t qualify for cheaper prime loans.
By some estimates, more than 2 million of such borrowers are at risk of foreclosure because they may be unable to make their payments as their loans adjust to higher rates.
On Capitol Hill, there’s a continuing discussion about how -- and whether -- to help those facing foreclosure. Congress’ Joint Economic Committee plans to release a report today titled “Sheltering Neighborhoods from the Subprime Foreclosure Storm.” According to the panel, the report argues that “foreclosure prevention is cost-effective” for stricken communities.
If the congressional panel is sympathetic to distressed borrowers, the views of poll respondents are more mixed.
Lenders, who profited handsomely by giving loans to just about anyone regardless of whether they qualified by traditional standards, got 39% of the blame for borrowers’ going into default on sub-prime loans.
Government regulators, who have been criticized for failing to crack down on risky loan practices, were deemed responsible by 20% of those polled.
The borrowers landed in the middle of the blame hierarchy, with 28% of those polled saying people should have known better than to take out loans they would have trouble paying.
Marvin Carter, who farms soybeans and corn in Carrollton, Ill., said he didn’t understand how someone could buy a home without putting any money down. “When I buy a tractor, they always want 20%, and I still have a hard time,” said Carter, 80.
His notion for who was at fault was volunteered by 9% of poll respondents: “I blame a little bit of everybody.”
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Homes and the economy
Slightly more than half of those polled believe the housing slowdown will hurt the economy, and 60% believe a recession is “somewhat likely” to “very likely.”
Q: Six months from now, do you expect housing values to increase in your neighborhood, decrease or stay the same?
Remain about the same: 51%
Don’t know: 1%
Q: As you may know, there has been a slowdown in new home sales nationwide, to the lowest level in seven years. Do you think the decline in new home sales will have a positive or a negative effect on the nation’s economy, or won’t it affect the nation’s economy one way or the other?
No effect: 27%
Positive effect: 11%
Negative effect: 54%
Don’t know: 8%
Q: Who or what do you think is mostly to blame for borrowers with sub-prime mortgages who are going into default? Is it: The sub-prime mortgage borrowers who should not have taken out loans they would have trouble paying if the interest rate went up, or the sub-prime mortgage lenders who approved mortgages to people who could not afford higher interest rates, or government regulators who should have been monitoring the sub-prime mortgage market more closely?
Borrower : 28%
Government regulators: 20%
Don’t know: 4%
Q: In your opinion, how likely is it that the nation could face an economic recession sometime in the next year? Would you say it is very likely, somewhat likely, not very likely or not likely at all?
Very likely: 16%
Somewhat likely: 44%
Not very likely: 26%
Not likely at all: 11%
Don’t know: 3%
Times Poll results are also available at www.latimes.com/timespoll.
*Response was volunteered.
How the poll was conducted: The Los Angeles Times / Bloomberg Poll contacted 1,373 adults nationwide by telephone April 5-9. Telephone numbers were chosen randomly from a list of all exchanges in the nation, and random digit dialing techniques allowed listed and unlisted numbers to be contacted. Multiple attempts were made to contact each number. Areas with higher concentration of African American households were disproportionately contacted in a separate random national sample to allow a more accurate analysis of that subgroup. Adults in both samples were weighted slightly to conform with their respective census proportions by sex, ethnicity, age, education, and national region. The margin of sampling error for all adults is plus or minus 3 percentage points. For certain subgroups, the error margin may be somewhat higher. Poll results may also be affected by factors such as question wording and the order in which questions are presented.
Source: Times/Bloomberg Poll