Housing Bubble About to Bust? Consumers Say No in ING DIRECT National Survey

Most consumers are confident about real estate prices, not concerned about mortgage rate increases.
RISMedia
While talk of a housing bubble triggered by higher interest rates is a topic of discussion and much news coverage, most consumer are confident about real estate prices and don't seem concerned by some increases in mortgage rates. Three quarters of the respondents said that they had very little concern about the prospective value of their homes.

Respondents to ING DIRECT's fourth annual homeowners' study foresee continued increases in home mortgage rates in the year ahead but are not overly concerned.

Seventy-one percent of those polled expect rates to increase, while 21 percent think they will remain the same, according to the national study conducted by Synovate, the global research firm.

On average, homeowners who have owned a home for at least three years feel that new mortgage interest rates will increase 1.6 percentage points over the next 12 months, with 50 percent expecting an increase between one and two percentage points. Sixteen percent anticipate a jump between three and four percentage points.

ING DIRECT found that the majority (85 percent) of those who own a home believe that their home increased in value during the last three years. While homeowners felt their home has increased in value by approximately 6% over the past 12 months, they only expect their home's value to increase by about 4% in the next 12 months. Homeowners in New England and Pacific states are the most likely to cite increases, while those in South Central states are the most likely to say their home's value did not change.

And of those who have owned a home for at least three years, 74 percent said they were not very concerned that there might be a downturn in the housing market in the next year, which would lower the value of their home.

Only 9 percent of those who experienced an increase in their home's value during the past three years say that the increase has allowed them to spend more than they earn annually. On the other hand, nearly two-thirds believe a 10% decrease in home value would have no impact on day-to-day spending.

Homeowners are most likely to consider their home to be an investment or a place to live when they retire. One in four think of their home as a source of extra income to draw from when cash is needed. This is reinforced by the ING DIRECT finding that only 8 percent of homeowners say they refinanced in the past three years and received cash back.

"We've long viewed buying a home as the most important long-term investment a person can make and that a home is the largest savings account one will ever have," says Arkadi Kuhlmann, president and CEO of ING DIRECT. "It is encouraging that most people do not consider the equity in their residences as piggy banks to be tapped for spending on vacations or furniture."

The survey also looked at the borrowing experience and reinforces the need for lenders to be transparent in the total cost of a mortgage. Respondents who report that closing costs were higher than they originally expected say the closing costs they paid on their current mortgage were almost $600 more than anticipated.

"It is important for borrowers to be educated and know the total cost of their mortgage, including any fees or closing costs," Kuhlmann added. "But it's really up to the industry to improve the mortgage experience by offering simple, straightforward products."

In order to make its mortgage offer more transparent, ING DIRECT's Orange Mortgage offers zero closing costs, including standard title insurance, for mortgages up to $500,000. ING DIRECT does not charge points for a better rate, nor does it charge a different rate in order to quality for zero closing costs.