Most Americans Believe Houses Continue to Gain Value

A survey by RBC Capital Markets last month shows that homeowners are expecting their houses to appreciate 5 percent a year in value.
By: Al Heavens: Realty Times
I've spent the last few Sundays visiting open houses, and have come to the conclusion - reinforced by conversations with real estate agents - that most sellers remain unconvinced that this is buyer's market now.

I saw a lot of house listed at last year's prices. While I don't believe that there is a bubble, despite one month's decline in the national median sales price of existing homes reported for August by the National Association of Realtors, I do believe that sellers need to get real about what people are willing to pay for a house that's just one of four on sale in every block or on every street in many areas.

My observation and those of real estate agents has been reinforced by a recent survey by RBC Capital Markets, which found that about half of all homeowners still expect at least 5 percent annual increases in their home values over the next few years.

The survey of 1,003 people, conduct nationwide in September and announced at meeting in Orlando, also found that 25 percent of homeowners have already paid off their mortgage - twice the number of people with risky variable and interest-only mortgages (13 percent).

"While it's true that it may be easier to pay off a mortgage in Selinsgrove, Pa., than it is in New York City, we were still very surprised that the number was so high," said Scot Ciccarelli, managing director and equity research analysts for RBC Capital Markets.

"This goes against the general belief that most Americans are leveraged to the hilt," he said.

More than 80 percent of all homeowners surveyed have at least $50,000 of equity built up in their homes and almost 60 percent believe they have at least $100,000 of equity in their homes.

Those who entered the end of the housing cycle with variable rate and interest-only mortgages are, however, clearly at risk once their mortgages renew. Nearly 40 percent of those with variable rate and interest-only mortgages are concerned with their ability to meet higher payments, while 13 percent haven't even considered the ramifications. While this is a fairly small segment of the overall survey (about 6 percent), it suggests material risk to this segment of the population.

Ciccarelli said that many of those surveyed in this category didn't seem well prepared for the higher monthly payments these mortgages will eventually bring.

"While real estate expectations are lower than they were last year, consumers still seem optimistic despite what we are seeing in the marketplace," said Ciccarelli. "Declining real estate values could eventually impact consumer spending as people don't feel as wealthy as they used to and become less likely to borrow against the equity they have built up in their homes."

Other findings:

"Getting exactly the right product" is far more important to consumers than traditional shopping attributes like brand, convenience and service.

More than half indicated that price remained their single biggest focus when they are shopping, but 35 percent indicated that "getting the right product" was most important to them.

Those with the highest incomes favored "getting the right product" over everything else, including price (47 percent versus 33 percent). In addition, those that favored "getting the right product" were also the most avid users of e-commerce. About 38 percent of this group indicated that they use the Internet more for shopping than they once did, compared with 20 percent of the price-driven consumers.

"People usually know what they want and the Internet is great for targeted purchases", said Ciccarelli. "It also seems to play less of a role in searching for the best price for something than we would have thought. These findings underscore the importance for companies to have a strong multi-channel distribution strategy."

Those making more than $100,000 were three times as likely to save money regularly as those earning less than $50,000. In addition, almost half of those in the lower income bracket indicated that they were living paycheck to paycheck or were forced to dip into savings to make ends meet.

Half indicated that they didn't expect to change their spending habits over the next year. However, for those who do expect to change, the spending for most categories is expected to decrease rather than increase, with two notable exceptions - home improvement and automobiles.

While consumers' worry list is large, geopolitical tensions and terrorism (28 percent) trumped headline topics such as gas prices (20 percent), rising medical bills (20 percent), employment concerns (13 percent) and interest rates (9 percent).