Forty seven percent of consumers think a housing bubble and collapse of housing prices is very likely or somewhat likely in their local residential real estate market within the next three years, according to the results of a new study released today. The results, part of the Experian-Gallup Personal Credit Index survey, show that consumers are increasingly worried about the negative impact of a prolonged housing slump. The current survey results continue a trend showing growing consumer concern for housing. Thirty seven percent of Americans were concerned about a housing collapose in May 2005, and forty two percent voiced similar concerns in April 2006. Fears of a potential housing price collapse are greatest in the West (52 percent) and the East (49 percent), according to Gallup, but lower in the Midwest (41 percent) and the South (44 percent). Consumers with annual household incomes of $75,000 or more are somewhat less fearful of a collapse in housing prices than are those making less money, study results found. Renters think that such a drop in housing prices is much more likely than do homeowners, reflecting an interesting dynamic between those on the sidelines and those directly impacted by any negative turn in housing prices. "Housing market conditions may not have reached bottom at this point, with 57 percent of renters thinking there is the potential for a price collapse in their local areas over the next few years and 18 percent of all Americans expecting prices to decline during the year ahead," said Ty Taylor, president of Experian Consumer Direct. "Still, there is reason for optimism given the local nature of the residential real-estate market and the price resilience it creates, as reflected by the 47 percent of Americans who expect housing prices to increase over the next 12 months and the 33 percent who expect them to remain the same."
About one in five consumers think the average price of houses in their local area actually will decrease over the next year. This is up from just 5 percent who felt this way in May 2005 and 11 percent in April 2006. Expectations for a decrease in average housing prices are greatest in the West (23 percent) and the East (22 percent) -- areas experiencing the sharpest run-up in prices during recent years -- and less pronounced in the Midwest (16 percent) and the South (11 percent). One in four homeowners said they have a first mortgage and a home-equity loan and/or line of credit. One in three homeowners under the age of 50 have this combination of loans, compared with 25 percent of those 50 years of age but younger than 65. Only 8 percent of homeowners 65 years or older have a first mortgage and a home-equity loan/line, according to the study. Thirty-six percent of consumers said they obtained their home-equity loan/line to finance home improvements or repairs, down from 43 percent in April 2006. Conversely, one in six consumers reported obtaining a home-equity loan/line to pay off their credit cards and/or to consolidate their debts, up from 14 percent in April 2006. Many experts have predicted that homeowners will tap into any equity earned during the housing boom to finance any financial difficulties they may face going forward, including payment adjustments from more exotic mortgage products. "Given today's inverted yield curve and the comparatively attractive rates on home-equity loans/lines, it makes a lot of sense for consumers to use this type of consumer financing to pay off their credit cards, consolidate their debt and strengthen their personal balance sheets," said Dennis Jacobe, chief economist for The Gallup Organization. "Still, this degree of consumer debt restructuring combined with the deteriorating conditions in residential real estate and the finding that 22 percent of consumers say they remain uncomfortable with their level of debt suggests that consumer spending is likely to continue to decline during the first half of 2007."