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Homeowners Out of Touch With Reality

This article was written by in Real Estate and Home. 8 comments.


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. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 3 comments… read them below or add one }

avatar Jonathan

Flexo,

Keep in mind that the 2% decrease in residential property values is a nationwide average, largely skewed by a select few regions of the country that had previously seen unsustainable price appreciation, and now are pulling back severely. The West Coast, Arizona, Nevada, and Florida are a few good examples.

Then there are those of us who live in the midwest, who “missed out” on the housing boom, having seen only 3-4% appreciation consistently over the past 20 years. So frankly I am not that concerned about the 10% price drop of homes in Las Vegas, or the 15% decline of condos in Miami.

The 2% nationwide price decline couldn’t mean less to those of us who didn’t get into an icy “hot” market to begin with.

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avatar Chris

In my area prices have been more or less stable, and my own home has gone up in “value” $10k since we bought it 1 1/2 years ago. I’d prefer it not, since that just means I have to pay more taxes. There are a lot of houses for sale in my area though, and it doesn’t look like many are selling.

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avatar Danny at Money Socket

This is human nature at work. If you own the home you’re living in, you won’t admit that property values are going down the drain. Not to mention this was a poll, and homeowners don’t want to scare potential buyers more than the media already has, causing more problems for future sellers. The reality is in most places sellers are in trouble, including myself. I wrote a post about my last investment property, which I stand to lose about 50K when I sell it in a few months. Thats the reality.

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