Rents Seen Rising as Poor Credit Hurts Homeownership Demand

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Americans are slightly more upbeat about owning a home and the housing market in general than they were at the end of 2010, according
to the latest National Housing Survey released by Fannie Mae.  However, they still lack confidence in the overall economy.

“Despite moderate signs of
improvement in the housing market and the overall economy, consumer attitudes
continue to be shaped by ongoing concerns about the recovery and their own
financial situations,” said Doug Duncan, Vice President and Chief
Economist of Fannie Mae. “Uncertainty regarding the improving labor
market, expectations of little home price and interest rate movement, and
rising household expenses has left consumers feeling less financially secure
and translates into weak mortgage demand.
While we have seen indications of
improving economic activity in recent months, especially the strengthening of
private sector employment, consumers’ attitudes improved only marginally, and
in some areas not at all, from a year ago, reflecting the continued unevenness
and uncertainty of this recovery.”

One-third of respondents think the U.S.
economy is on the right track but this is up from 29 percent last quarter and
is the highest percentage recorded in the survey to date.  When it comes to housing prices, 30 percent
expect prices to improve over the next year, up four points from Q4 while 48
percent think they will remain the same and 17 percent expect further
losses.  On average the expectation was
for a 0.9 percent increase compared to an estimate of 0.4 percent in the
previous survey.  Rents are expected to
increase by 43 percent of respondents compared to 39 percent in Q4 and the average increase is
expected to be 3.2 percent up from 2.8 percent last quarter.

Americans cite income, credit
history and down payment as the biggest obstacles to homeownership with credit
history being the top reason given by renters.
 
Seventy-one percent of delinquent borrowers and 41 percent of renters
feel their income is insufficient to meet their current expenses.

Sixty-seven percent of respondents
believe it is a good time to buy a house compared to 65 percent in the last
survey but three percentage points below the responses in the first quarter of
2010.  Sixty-six percent said they
believe buying a home is a safe investment, an improvement of 2 points since Q4
2010 but 17 percent below the responses in 2003.  Even though opinions of the safety of
homeownership have declined fairly steadily since the 2003 survey, 57 percent
still feel that a home has potential as an investment and outranks other
alternatives.

Among all respondents buying a home was thought
superior to renting by 87 percent, an increase of 3 points from Q4.  This opinion however was shared by only 74
percent of renters, a decrease of 13 points in one quarter.

As in the last survey, respondents
continue to rank non-financial considerations such as having a good place to
raise and educate children (78 percent) and safety (76 percent) as driving the
desire to own.  Only 63 percent listed
the perception that renting is a poor investment.

Less than half (44 percent) of
homeowners think their home is worth at least 20 percent more than they paid
for it, down from 46 percent in June and 51 percent in January of last year.  The number of homeowners who believe their
mortgages are underwater has dropped from 30 percent to 23 percent but the
number of homeowners who say they are stressed by this has increased from 35 to
46 percent.  Still, 90 percent of those
who are underwater have not considered defaulting on their mortgage but 27
percent think it is OK to do so if faced by financial distress.  This is an increase of 13 points since the
first quarter of 2010.  Most (87 percent)
of Americans disapprove of defaulting even if the mortgage is underwater or the
owner is facing financial distress, a number that remains fairly constant.

Only 20 percent of those surveyed
said their income has increased significantly over the last year while 59
percent reported it essentially unchanged and 47 percent said it is
significantly lower.  When asked if they
expect this aspect of their lives to improve over the next year 42 percent said
yes, an increase of 2 points while 15 percent, a decrease of 2 points said they
expected it to get worse.

Monthly household expenses are
significantly higher than a year ago for 40 percent of respondents, up from 34
percent last quarter and 31 percent a year ago. 
Among delinquent borrowers 47 percent reported higher expenses.  The report noted that there was a 9 point
spike in March in the number of all Americans reporting higher expenses
compared to the previous two months in the quarter.

Among delinquent borrowers one-third
have considered defaulting on their mortgages compared to only 5 percent of all
mortgage holders and 20 percent said they have seriously considered it.  Forty-four percent of delinquent borrowers
say they would be more likely to rent their next home than buy, up 4 points
from one year earlier.
  The average
delinquent borrower pays 11.6 percent more of his income on mortgage payments than
all mortgage borrowers.

A majority of renters (65 percent)
say they would buy at some point in the future even though they are more likely
to continue renting after their next move; 31 percent say they will always
rent, down 3 points from last quarter. 
Four out of five renters say that buying a home would entail making a
financial sacrifice and 61 percent of minority respondents called it a “great
deal” of sacrifice.

Americans cite income, credit
history and down payment as the biggest obstacles to homeownership with credit
history being the top reason given by renters.
 
Seventy-one percent of delinquent borrowers and 41 percent of renters
feel their income is insufficient to meet their current expenses.

African Americans are more
optimistic about the survey topics than the general public; 61 percent expect
their personal finances to improve in the next year compared to 42 percent of
the general population and 44 percent think the economy is on the right track
compared to 33 percent of the larger sample. 
Hispanics showed similar optimism with 59 percent expecting an
improvement in personal finances and 74 percent viewing home ownership as a
good way to build up wealth compared to 59 percent of the general population.

Generation Y respondents, those 18
to 34 years of age, were also more upbeat than others with 59 percent expecting
an improvement in personal finances and 62 percent perceiving home ownership as
a safe investment.     

Fannie Mae first conducted this survey
in 2003 and has conducted it quarterly since the beginning of last year.  The current survey covers the first quarter
of 2011 and involves telephone interviews with 3,403 Americans over the age of
18.  A 3,003 case random sample included
781 outright homeowners, 841 renters and 1,261 mortgage borrowers, 297 of whom self
identified as underwater, i.e. owing at least 5 percent more on their mortgage
than the value of their home.  There was
an additional random oversample of 400 delinquent borrowers included in the
survey.

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