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Cascade: No. 75, Fall 2010

Spotlight on Research: Sustainable Housing: Consumers’ Perspective

As in the past, economic recovery will rely on consumers, who can contribute to the revitalization of economic activity by increasing their spending. This is possible only if consumers have the necessary monetary resources immediately available or access to nonmonetary assets. Homeownership typically represents a sizable portion of consumers’ assets. However, recent economic events have adversely affected the financial status of many consumers, leaving them with less equity and, therefore, feeling less wealthy. Thus, the meltdown in the housing market and the general financial crisis have challenged consumers to rethink their views of housing and homeownership as well as their overall financial well-being. Consumers’ current views on homeownership and their future outlook for the economy will be a key gauge in determining their role in stimulating the economy. Fannie Mae’s latest national housing survey contains insights into the attitudes of consumers in these two areas.1 The following is a summary of some of the results of the survey.

Data and Methodology

Marvin M. Smith, Ph.D., Community Development Research AdvisorMarvin M. Smith, Ph.D., Community Development Research Advisor

Since 1992, Fannie Mae has conducted a national annual survey of the attitudes of Americans about housing, homeownership, and the economy.

The most recent survey was conducted from December 12, 2009, to January 12, 2010. The survey data were compiled from two samples of telephone interviews with Americans 18 years of age or older. The first sample involved 3,451 individuals, including “a random sample of 3,051 members of the general population, including 887 homeowners, 1,110 mortgage borrowers, 908 renters, and 338 underwater borrowers (those who report owing at least 5% more on their mortgage than their home is worth).”2 The second sample involved an oversampling of those delinquent on their mortgage (i.e., at least 60 days behind on their mortgage payment). Included in this sample were 400 randomly selected delinquent borrowers and 186 randomly selected underwater borrowers who were also delinquent on their mortgage.

Fannie Mae conducted a similar survey in December 2003 when conditions in the housing market were more favorable. At that time, mortgage interest rates were at their lowest since the 1960s, and the sale of homes was at an all-time high. The results of the 2003 survey are used periodically to contrast the results of the 2009 survey discussed here.

Selected Survey Findings

The Fannie Mae 2009 survey is quite extensive. Consequently, only highlights will be presented here.3

The Economy and Personal Finances.The survey respondents’ views on the economy and their personal finances might underscore their prospective role in revitalizing the economy. According to the survey, most people are pessimistic about the economy, yet optimistic about their own finances. Sixty-one percent think the economy is on the wrong track, up from the 43 percent who voiced this opinion in the 2003 survey. A further look at the various segments of those surveyed reveals that the majority of delinquent borrowers (56 percent), homeowners without a mortgage (or outright homeowners; 63 percent), mortgage holders (61 percent), renters (60 percent), underwater borrowers (59 percent), and Hispanics (57 percent) hold this unfavorable view, while less than half (43 percent) of African Americans are pessimistic.

In contrast, when queried about their personal financial situation for the coming year, 44 percent think it will get better as opposed to the 38 percent who think it will stay the same or the 17 percent who think it will get worse. It is noteworthy that 63 percent of delinquent borrowers and 73 percent of African Americans think that they will be better off financially next year.

Homeownership. Eighty percent of those surveyed believe that a high rate of homeownership is important to the economy. In addition, 64 percent think it is a good time to buy a house. However, 60 percent think that it is harder to purchase a home today than it was in their parents’ generation, and 68 percent feel that it will be even harder for the next generation. A number of barriers prevent renters from purchasing a home. Given the recent decline in house prices, a possible gauge of consumers’ attitude toward the housing market in the near future might be their view of house price changes next year. According to the survey, 37 percent of the respondents believe that housing prices will increase in the coming year. This differs considerably from 2003, when 64 percent thought housing prices would go up. Moreover, nearly a quarter of the consumers in the 2009 survey think housing prices will decline, while only 9 percent held this view in 2003.

Appeal of Homeownership. The survey reveals that consumers (70 percent) believe purchasing a home is still one of the safest investments; 83 percent held this view in the 2003 survey. Furthermore, 80 percent indicate that a major reason for buying a home is to have a safe place to raise children and provide them with a quality education. In addition to the personal desirability of owning a home, the vast majority of respondents (84 percent) indicate that a high rate of homeownership is important in strengthening their local communities.

Homeownership Finances. It is crucial to obtain the best information available when selecting a mortgage. For the consumers in the survey who have a mortgage, an overwhelming majority (89 percent) are satisfied with the information they received. Interestingly enough, 84 percent of those with underwater mortgages were satisfied as well. Nearly two-thirds of those surveyed think that having many different mortgage products available increases the chances of finding the best possible plan for them. When it comes to their final choice, 93 percent of those with 30-year fixed-rate mortgages are more satisfied than those (68 percent) with an adjustable rate mortgage.

Views of Renters. Seventy-five percent of renters believe that it makes more sense to own than rent, since homeowners are protected against rent increases and benefit from house price appreciation. But the three obstacles most often cited for not buying are bad credit; lack of funds to purchase or maintain a home; and the belief that the time isn’t right economically to buy a home. Nonetheless, 50 percent of renters think they will buy a home in the next three years.

Homeowners in Distress. Survey respondents indicate that over half of their debt consists of credit card debt (28 percent) that is carried over each month and a first mortgage (27 percent). For those delinquent on their mortgage, the percentages of debt owing to credit card debt carried over and a first mortgage are 59 and 74, respectively, and the percentages of the two types of debt for underwater borrowers are 35 percent and 60 percent, respectively.

Ninety percent of respondents were not foreclosed on. Nonetheless, mortgage default is deleterious to the economy and is potentially contagious. The survey reveals that knowing someone who has defaulted makes those who are current on their mortgage as well as those who are delinquent over twice as likely to seriously consider stopping their payments. However, respondents report that the negative impact on their credit score and moral qualms are factors motivating them to pay their mortgage. As to whether banks should foreclose when owners default on their mortgage, 48 percent say yes, while 43 percent say no. But 53 percent think homeowners are to blame for getting a mortgage they can’t afford.

Conclusion

Doug Duncan, vice president and chief economist at Fannie Mae, sums up the survey as follows: “Consumers are still committed to owning a home, but are showing increased cautiousness, regardless of whether they rent, own their homes outright, or have a mortgage. They are rebalancing their attitudes toward housing and homeownership by adopting a more realistic, long-term approach, and are less willing to take risks. This focus on sustainable housing is better for the economy, better for the housing market and better for America’s families.”

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