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Thursday, July 21, 2011

Housing will be a drag for years

The Rasmussen poll headline is depressing enough:

Just 49% Say Home Is Worth More Than Mortgage

The details aren’t much better.

Seventy-one percent (71%) of government workers believe their home is worth more than the mortgage. Just 50% of private sector employees and 42% of retirees share such optimism.

Forty two percent of retirees?  Frankly, I’m surprised that 42% of retirees even HAVE a mortgage, let alone that they think they are likely to have negative equity.  As a general rule, one would think that by the time you retire your mortgage should be paid off, or at least minimal.

There’s no indication in the question wording that this was asked just of people who had a mortgage. There’s no skip pattern indicated below.


So why will this be a drag for years? 

First of all, we’ve been living off perceived house equity during the boom, when banks urged willing customers to use their homes as piggy banks. It used to be that 2nd mortgages were a sign of financial riskiness; renamed as “home equity loans” they were marketed as a way to finance education, a car, a vacation, etc. Since there’s little equity to be drained out, this economic push is unavailable in general.

Second, whereas my parents’ generation, suffering through the Depression during childhood, tended to have assets in retirement, baby boomers weren’t as successful at saving.  This means that while there are a lot of baby boomers, it’s unclear they will be throwing much money around – more likely, they will be soaking up Medicare money, which by and large isn’t a particularly profitable investment for society to make. It was common for retirees to sell their paid-for homes, buy or rent a smaller place, and use the remaining money to live off of.  But selling a home with little or no equity doesn’t produce income. So, there’s an intergenerational problem in particular.

What does this intergenerational problem mean? Will thousands of grandmas and grandpas be foreclosed on and have to live … where?

Here’s the way the questions were asked:

National Survey of 676 Homeowners
Conducted July 17-18, 2011
By Rasmussen Reports

1* Looking ahead over the next year, is the value of your home likely to go up, go down, or remain about the same?

2* What about over the next five years? Is the value of your home likely to go up, go down, or remain about the same?

3* Is the value of your home worth more than the amount you owe on your mortgage?

4* Over the last six months, have you missed or been late on a mortgage payment?

5* Looking ahead, how likely are you to miss or be late with a mortgage payment in the next six months?

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