From the Chat: Questions about Confidence and Housing

Tuesday’s chat session ended with some questions that we didn’t have time to answer or where we needed to check the data before we could answer them completely.  Over the next few days we will provide answers to as many of these as possible.

One question — “In your views, how has the current ‘debt ceiling crisis’ affected demand, supply and/or financing for the residential housing markets?” was answered by another questioner:   “Being in the home building business ($500k to $750k) in Dallas, Texas and just selling one last weekend ($600K), I can tell you that the consumer is more nervous about what is going on in Washington rather than falling home prices or foreclosures or even the job market and this hasn’t just started due to the debt debacle.  It’s been that way for a long time.  Why isn’t anyone talking about this and what are your thoughts on this?”   Consumer sentiment and confidence do make matter a lot in housing.  For many people buying a house is a very large financial decision involving a large portion of their personal wealth and including a commitment to make mortgage payments for years into the future.    The question from the Texas home builder points this out.

Consumer sentiment is not the only factor affecting housing. Another question pointed to the financial condition of potential home sellers: “Is not negative equity the main story here? Credit worthy borrowers who want to move can’t in many situations. How can anything recover until this is addressed?”   When the remaining balance on a home-owner’s mortgage exceeds the value of the house, he or she could face financial difficulties because they would need to dig into their pockets to pay off the mortgage before buying — and paying for — a new home. However, the housing market is more complicated than negative equity. So while under water homes are an issue for many people, they are not the only problem.  Moreover, some banks and lenders might not see a potential borrower with a negative equity position on his old house as a credit worthy buyer

Another question about negative equity: “Are depressed home prices and negative equity still a factor for reduced labor mobility/high unemployment?”   Americans sometimes seem to be always on the move from one city to another, often moving for a new job or for a promotion in an existing job. Difficulties in selling a home are certainly a deterrent to moving to a new city or even searching for a job in a different city.  There isn’t a lot of data on how important problems of selling an home are in labor mobility and resolving unemployment, but it does seem to be a factor.

Last question about sentiment: “In your earlier you response you talk about the need for more optimism. Do you think consumer confidence is the primary hurdle to a recovery of the housing market?”  Optimism or positive sentiment is needed and improved consumer confidence is necessary for a lasting revival in housing with rising prices.  There are other factors and it is difficult to point to one primary factor.  Increased willingness of banks to lend money for mortgages is another,  as is improvements in consumers’ financial condition along with stronger economic growth and declining unemployment.  And, as the first question above noted, resolving the fiscal policy issues in Washington would probably be helpful as well.  Someone might note that all these factors reversed since the boom days of 2006 when home prices were soaring.  Home prices, the economy and consumer sentiment all interacted and rose together in 2003 to 2007 and then fell together in 2008-2009.  It will take more than one primary factor to turn the whole things around.\

Click here to view the July 26th Live Chat post with more Q&As.

The posts on this blog are opinions, not advice.
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  1. arjun says:

    This is really a thought provoking issue. It definitely needs a detailed research.

    Could you please let me know how can I access to Q&A texts of July 25 chat? I couldn’t see in archive.


    • David Blitzer says:

      The live chat can be found at Chat. Since we did not have enough time to answer all the questions received, we will be posting additional questions and answers over the next few days. Thanks for your interest in HousingViews.

  2. arjun says:

    Thank you for the reference. In one of the answer in the Chat, Shiller mentions about the home buyer attitudes (“Most important… data that Karl Case and I have been collecting about home buyer attitudes”). Is that data available in this blog or in S&P website? Please provide me the link.

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