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Posted by on Aug 3, 2012 in Survey, The Future | 15 comments | Print Print

Fannie Survey

From HW:

An overwhelming 85% of Americans prefer homeownership over renting, Fannie Mae said in a new study. However, while this remains the prevalent attitude, economic realities still keep many from actualizing this dream.

Demographics such as income, age, marital status and employment status are still considered significant drivers in the decision of buying a home or renting, Fannie found that beliefs about housing help determine whether Americans intend to rent or buy their next residence. 

“The whole world thinks about underwriting or what’s my income (when evaluating the homebuying decision), but what is driving consumers seems to fall more in this attitudinal world,” said Steve Deggendorf, one of the authors of the study. “People are thinking about this process (of buying a home) as being very deliberate, but with most people it is complex.” He even describes it as emotional, and in most cases, employing a series of subjective and objective beliefs on the consumer’s part

Fannie produced the national housing survey based on feedback from 12,014 interviews that occurred in 2011.

When looking at feedback from Americans who already have a mortgage, 40% cited attitudes about finances—such as the ease of getting a mortgage, affordability, homeownership benefits and financial stressors—as drivers that will shape whether they buy or rent their next property. About 39% of homeowners in the same group cite attitudes about housing as influencing their next move, while 21% say demographics such as income, age, marital status, employment, race or urbanicity will be primary drivers of their next decision.   

“Traditionally people tend to focus on demographics and the underwriting process,” said Li-Ning Huang, product manager and one of the report’s authors. “But everybody’s situation is different and for some current mortgage owners, the top driver is whether they can afford a new mortgage or are they qualified.”

The key drivers of homeownership change when analyzing the responses of Americans who are currently renters. With this group, the majority — or 42% — suggest attitudes about housing such as whether renting or owning makes more sense, flexibility, good or bad market timing, negative experiences and underwater status — are driving whether they rent or own their next residence. Thirty-three percent of current renters say demographics like employment, age, income and marital status also are important homeownership drivers, while only 25% cite financial attitudes as having an impact on their next housing decision.

Sixty-five percent of homeowners who own their homes outright are driven by demographic considerations such as employment, income and age. Only 17% of these homeowners cite their attitudes toward housing as a driver behind their housing decisions, while only 19% consider financial concerns as the main driver.

The takeaway from the study, according to Deggendorf, is that “for a large number of people, emotions rule.”  He added, “We need to think about how they approach the housing decision and think about the kind of help that they may need (in the process).”

Even in the wake of a financial crisis with many homeowners underwater, the number of survey respondents who cite the negative financial effects of the housing crash as key drivers of their next housing decision is minimal, according to Fannie’s research team.

“We asked people whether they have ever been underwater or have been thinking about delinquencies,” Deggendorf said. “Those factors did not rise to the top of the list. It is very interesting to see those were not big drivers of the homeownership or rental decision.”

What’s keeping homeownership alive is the fact that it’s not a stock or bond, but something desirable for individuals and families to live in even without a significant return on investment. “The nonfinancial benefits that people derive from the consumption of housing mitigate the negative financial experiences that many homeowners have had,” said Deggendorf.

Still, Deggendorf and Huang believe the report suggests real estate professionals need to address the underlying attitudes that drive homebuyer decisions.

“If we helped people understand these attitudes that are driving their decision-making process, it would help them make better housing decisions,” he said.

Rather than just having consumers chase the home they dream about, a more conscious, direct approach would be to help them balance their wants against what they can afford, Deggendorf and Huang said. The research team says it’s important to educate and inform potential homebuyers since many of them may be ignoring their ability to safely buy a home, while others are potentially overbuying by listening more to their emotional desires.

Fannie’s research team believes prudential regulators also should be informed of the attitudes shaping homeownership to ensure any steps they take are in line with the consumer population.

The good news is homeownership as a goal for Americans hasn’t changed in the past six years.  

“Our study shows that the negative housing events of the past few years have not discouraged people from wanting to own a home,” the Fannie study concluded. “Exposure to mortgage default, perceived home value appreciation/depreciation, and self-reported underwater status are not significant factors in the models in predicting individuals’ intentions to own a home for their next move.”

15 Comments

  1. “With this group, the majority — or 42% — suggest attitudes about housing such as whether renting or owning makes more sense, flexibility, good or bad market timing, negative experiences and underwater status — are driving whether they rent or own their next residence.”

    Last time I checked, 42 out of 100 is not considered the majority.

  2. The second set of highlighted paragraphs is where the key point is – that real estate professionals should help people understand the underlying attitudes.

    Do you see this happening?

    I don’t – and won’t as long as passing a 150-question, multiple-choice test is the only requirement for entry.

  3. Slightly off topic, but related to Fannie & Freddit, I just saw that Krugman is calling for DeMarco to be fired for his decision to protect taxpayers. Just confirms that DeMarco made the right call.

  4. The only reason I see to own is to eventually actually own, i.e., no mortgage.

  5. It’s surprising how people act irrationally when it comes to many financial decisions. Making decisions about what makes you feel good at the time can be extremely problematic, but people do it everyday. I don’t really know that you could educate the public to make better financial decisions. You might help some but some are going to make the bad decisions anyways.

    The market it set at the margin and only a very small percentage of the population is buying or selling in a given year. Even if your going to buy based on an educated financial decisions you’re competing against somebody who will overestimate their future earning power and buy the most expensive thing the bank will loan them money for.

    My biggest gripe would be the attempts to bail people out that make the bad decisions. If you want to buy a house on an emotional state or you want to lend money to people that can’t afford houses so they can realize their dream go ahead. Just don’t make everybody else pay for it when it goes wrong.

    The attitude won’t change through education, it will only change when you force people to eat the mistakes. The school of hard knocks is the best solution.

  6. the Fannie study concluded. “Exposure to mortgage default, perceived home value appreciation/depreciation, and self-reported underwater status are not significant factors in the models in predicting individuals’ intentions to own a home for their next move.”

    In other words – nobody has suffered the true consequences of their actions and the moral hazard is firmly in place.

  7. The first thing I look at are cost of the annual property taxes and if there are extra hidden costs (HOA’s, mello-roos, special assessments, pool maintenance costs, etc)…… those items you can’t deduct on your annual taxes.

  8. Re #8 check if the garbage collection has a fee or is covered by taxes as well.

  9. Funny how 85% wanting turns into only ~64% owning.

    It took a massive bubble with a complete abdication of lending standards to briefly push it up a mere 5%.

    No wonder FNMA is a ward of the state.

  10. I wonder what % can really afford to own?

  11. #9; In the county of San Diego; water and garbage collection fees vary quite a bit from what I understand. “In the city” they don’t charge by the number of receptacles you put at the curb, but in the suburbs they do….it can add up when you have multiple yard waste and garbage receptacles each week.

    Water in the city limits is an outrageous price compared to outlaying suburbs that use a different water company. That’s why having a pool in the city-limits is a huge extra cost. I know a couple that have an ornamental 15,000 gallon Koi pond and have an average water bill between $800-$1100 each billing! That’s in the city.
    My point is that there are so many hidden extra costs buyers don’t look for when signing the contract once they find that one house they really want. You might be in for a shock if your used to paying one thing for services, then move to where costs are extremely different just a few miles away..

    In the past I have phoned the electric company and asked what the “average monthly electric bill” is for a particular address of a home I was considering to buy….just so I have some idea of cost if I purchase.

  12. #4 owning and having no mortgage is nice but the cost of the annual property taxes & services & HOA’s, special assesments goes on….and on…..and on….and on, long after paying off a house. Those things alone can add up to equal a HEFTY house-payment each month even after paying off the mortgage.

  13. #13 absolutely right, stay away from those! (ex prop tax)

  14. Those things alone can add up to equal a HEFTY house-payment each month even after paying off the mortgage.

    Yeah, anyone that thinks they really “own” their home will learn otherwise should they stop paying those.

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