A new Fannie Mae survey of renters and homeowners about homeownership offers both good and bad news for builders waiting for a housing rebound.
On the positive side for builders, Americans remain invested in the concept of homeownership, according to the survey, which was released this week. Seventy percent believe that buying a home is one of the safest investments they can make. Eighty percent say that homeownership is important to the economy. And they definitely see the value of lower prices, low interest rates, and the soon-to-expire federal housing tax credit: 64% think it is a good time to purchase a house, with 31% saying now is a “very good” time to buy.
However, the housing downturn and economic challenges of the past few years has clearly affected the mindsets of homeowners and renters alike. “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,” said Doug Duncan, Fannie Mae’s chief economist.
These consumers think it will be tougher for them to obtain a home loan than it was for their parents (60% of respondents agreed with this, compared with 49% in 2003). They also expect that it will be harder for the next generation to buy a house (68%). However, nearly one-half (43%) said that nothing in the past year has changed their plans about when they will purchase a home.
For comparison, in answer to that same question, 8% said they would buy a home sooner than planned, 13% percent said they would probably purchase later than planned, and 34% said they never planned on buying a new home in the past year and still did not.
The survey also asked respondents questions regarding the foreclosure crisis and the issue of strategic defaults, where a borrower decides it makes more economic sense for him or her to default on their mortgage. Earlier this year, University of Arizona law professor Brent T. White published a widely discussed paper that suggested that based on financial logic, many underwater homeowners should simply walk away from their oversize mortgage and value-losing homes. “Millions of U.S. homeowners could save hundreds of thousands of dollars by strategically defaulting on their mortgages,” he wrote.
Perhaps, but Americans don’t like that idea, according to the Fannie Mae data. Nearly 9 in 10 respondents (88%) said that it’s not OK for a person to stop paying their mortgage just because the loan exceeds the value of the home. Similarly, the vast majority of respondents in various categories (93% of mortgage holders, 89% of underwater borrowers, 89% of Hispanics, and 81% of African-Americans) say they have never considered stopping or paying incompletely their mortgage bill.
The survey found that Americans believe that people are doing the best they can to avoid such a default, with just 14% of respondents agreeing that people are “fairly willing to default based on economic calculations.”
Delinquent borrowers are far more likely to have evaluated such a choice, with 39% saying they had considered not paying or only partially paying their mortgage. Similarly, these borrowers also are more likely (39%) to say that “financial distress” makes it “OK for them to stop paying their mortgage.” In comparison, only 15% of total respondents said that was acceptable.
Personal connections may be a factor. Overall, 39% of respondents said they knew someone in their area or neighborhood who had defaulted on their mortgage, which could be a risk factor in the ongoing foreclosure crisis.
Fannie Mae’s survey found that borrowers, both among those who were current on their home loans and those who were delinquent, were more likely to have considered stopping payment on their mortgage if they knew someone who had defaulted themselves.
Among all borrowers surveyed, just 2% of those who didn’t know anyone who had failed to pay their mortgage said that they had seriously considered not paying that bill. That figure was more than 10 times higher (33%) among delinquent borrowers who said they did know someone who had defaulted on their mortgage.
Alison Rice is senior editor, online, at BUILDER magazine.
Learn more about markets featured in this article: Phoenix, AZ.