I have limited access to the internet over the next few days, so there may be only sporadic posting on Consumerism Commentary during that time.
I saw Les Christie’s article, Out of Touch With Realty Reality, last night and I found it interesting. If homeowners are convinces that their homes are increasing value even in a general down market, are they out of touch? Or does it even matter?
Most – 55 percent – are confident that their homes continued to increase in value compared with a year ago… The overconfidence of homeowners doesn’t jibe with the findings of most home-price indices, which point to lower median single-family house prices of about 2 percent nationwide.
On what are these 55% basing their conclusions? It is probably not actual sales of their own homes. Perhaps it is sales of similar homes in the neighborhood or community. Could it be just a “gut feeling” based on an innate desire to see their home’s value rise as a human element of pride? The real value only comes to light — despite anyone’s best zestimate — when it is time to sell.
74 percent of the survey respondents said they were confident that they could sell their home within six months at the price they think it’s worth.
Are 74% of the respondents also confident that when it comes time to sell, they will have six months leeway in order to get their best price? People move for a number of reasons, the biggest of which are likely to take advantage of a job transfer, to take care of a loved one, to upgrade to more space for a larger family, or retirement. It seems to me that the only one with six months to spare would be retirement. Families with children often have to move during the summer so the school year is not disturbed.
People move from one house to another for a variety of other reasons, so maybe I’m missing something, but for most families, I think 6 months is a stretch, and if it takes that long to get the “right price,” then it’s not really the right price.
Looking long-term makes homeowners even more optimistic: 85 percent believe their home will rise in value during the next five years, and 63 percent believe a house is a good investment.
Perhaps I fall between the 63% and 85% above. I do believe homes in general will rise in value — and if I owned my apartment rather than rented, I would feel that way about my own — over the medium to long term. But a house as a good investment? Real estate may be a good investment, but the home you live in, not so much. No other kind of investment makes you pay so much into it in order to keep it in good condition.
Many of the survey respondents appeared to feel that bad things happen to other people; 49 percent were concerned that there was a moderately severe impact on the overall U.S. economy from the weakening housing market, and 12 percent said it was not hurting the economy at all.
I’ll never forget one day a few years ago when the brother of my ex-girlfriend explained to me his rationale for buying a house that was likely too expensive for him and his family: house prices always go up. The confidence reminded me of all those people buying into tech stocks in 1997 and 1998. As it turns out, his particular county has continued to see increased through the latest general market downturn, still above inflation, but I can’t find a source. Even still, the party can’t last forever thanks to the killjoy called, “reversion to the mean.”
Published or updated June 26, 2007.