In Face of Housing Slowdown, Homeowners Remain Optimistic

Despite news that the market is slipping, just 6% of those surveyed in August said they think their home's value will decline in the next 12 months.
By: Andrea Coombes: The Wall Street Journal Online
Homeowners are either remarkably stable people with their financial houses in order or they've got their heads in the sand. Despite news of late that the housing market is slipping, just 6% of homeowners in a survey in August said they think their home's value will decline in the next 12 months.

Ten percent expect their home's value to increase a lot in that time, 53% expect it to increase a little and 27% expect it to stay the same. Another 4% weren't sure where home values would go, according to the survey of 1,361 homeowners nationwide conducted for Wells Fargo and released Monday.

The survey predates a fair amount of negative reports on the housing market, such as the recent news that U.S. home builders in September slashed prices at the fastest pace in 36 years.

And even the experts don't agree on just how bad the housing market will get.

For homeowners who aren't planning to sell, the market likely looks just fine.

"If people are planning to stay in their home for more than the next 12 to 18 months, I don't think they're feeling the nervousness," said Doreen Woo Ho, president of Wells Fargo's consumer credit group.

"It's always the people who are facing the issue to sell - they're moving, they may have some other changes in their life, divorce - those things cause more anxiety around home values," she said.

Plus, many homeowners are likely still enjoying recent gains. "Even with a dip in market values, they're probably still finding positive equity gains over the last few years. From that standpoint, it's still a very positive feeling," Woo Ho said.

"What we've always noticed is it takes consumers a while to perhaps understand what's really going on in the market. When rates were rising with the Fed, we didn't see much reaction and people were still taking out lines of credit. After about six months of rising interest rates, all of a sudden it hit them," she said.

By the time some consumers see the housing market in a negative light, it may be time to change their minds again, according to Wells Fargo's forecast that the housing market will only see a slight dip.

"The economy is not very strong, but if it continues with some positive growth and if interest rates stay stable over the next year or so, we will see the housing market towards the end of 2007 start appreciating again. Not very much, but it could start appreciating again. The danger is in this next 12-month period. There are a lot of what-ifs: What will happen with inflation, in the job market," Woo Ho said.

My home is my asset

Homeowners these days see their home as a valuable asset, with 72% of those surveyed saying their home equity is their most important investment. That's a perception that's emerged in recent years, Woo Ho said.

"We've seen a shift in homeowner attitudes. Initially, five years ago, we talked to consumers, they thought of their home as a liability, as an enormous mortgage payment they have to make," she said.

"As we've seen the housing market go through appreciation and a high growth trend, there's been a shift in attitude toward seeing the home as an asset...they think of their home as more than just a place to live, more than just a mortgage payment, but as a smart financial investment."

Adjustable-rate outlook

While homeowners overall are optimistic about the housing market, those with adjustable-rate mortgages - 14% of those surveyed had an ARM as their primary mortgage - did express concern: 79% of homeowners with an ARM said they're worried about rising interest rates.

Still, while a good portion of these homeowners expressed concern, 21% said they will not take any action when their rate adjusts. Of those who do plan to take action, most say they will refinance.

Sixty percent of these ARM-borrowers said they know when their loan rate resets, while 27% said they don't know and 13% were not sure, according to the survey.

Woo Ho said she's not surprised a fair portion of homeowners don't know when their loan rate adjusts.

"We find that in our servicing of customers it's becoming more important for us to continue to inform and educate them as to what they actually bought. It's a question more of remembering, not that it wasn't discussed," she said.

Homeowners should take note of any alerts from their lender regarding an impending rate adjustment.

"Our general advice is you should probably start thinking three to six months before your deadline about what options are available so you can decide what you want to do."

Give me energy savings

When offered a list of possible home-improvement options and a hypothetical gift of $50,000 to make those improvements, 24% of the homeowners said they'd make environmentally friendly additions, followed by 12% who said they'd install a state-of-the-art kitchen; 11% pointed to a luxury master bedroom suite or bath, 8% said swimming pool or hot tub, 6% said a dedicated play area for their children, 1% said an in-home wine storage area, 18% said none of the above, and 13% weren't sure.

Why the emphasis on environmentally friendly changes? "There's much more awareness of high energy costs," Woo Ho said. Plus, she said, "probably the environmental movement in this country is having its impact. People are aware they should be more conscious of the environment," she said.