Fewer Than Two-Thirds Of Americans Think Buying A Home Is A Good Investment, Poll Finds

WASHINGTON (By Corbett Daly) - Homeownership as an investment is no longer the rock-solid foundation for the American Dream it once was, according to a survey released on Monday by the firm the government created in the 1930s to promote homeownership.

Fewer than two in three Americans now think owning their own home is a safe investment, down sharply from more than four out of five who thought it was a good investment less than a decade ago.

That attitude shift is likely to cause rents to rise as more Americans opt for renting over buying, according to the latest quarterly survey of attitudes toward homeownership from Fannie Mae, the largest provider of U.S. home mortgage funds.

The National Housing Quarterly Survey found just 64 percent of Americans think owning their own home is a safe investment, down from 70 percent at the beginning of last year and sharply lower than the 83 percent who thought it was a safe investment in 2003.

Last week, data released by the National Association of Realtors showed that home sales rose for third straight month in January, while the median home price fell to its lowest since April 2002.

An overhang of foreclose properties is weighing down the property market even as the broader economy appears to have entered a sustainable growth path.

"The public is aware that the demand side increase is going to be in the rental market, not the housing (purchase) market," Doug Duncan, chief economist at Fannie Mae, said in a telephone interview.

Growing demand for rental properties as the economy strengthens is set to lift underlying U.S. inflation gauges, though the Federal Reserve is not expected to raise interest rates anytime soon.

High rental vacancies have weighed on the core consumer price index, which excludes volatile food and energy prices, and economists now see this anchor slipping loose.

In the fourth quarter of 2010, the rental vacancy rate fell to 9.4 percent -- the lowest since the second quarter of 2007 -- from 10.3 percent in the July-September period, according to government statistics.

Rental costs constitute about 40 percent of the core CPI, which rose 0.8 percent in the 12 months to December, staying close to a record low. Core CPI is a gauge of underlying inflation.

Duncan noted that borrowers are swinging back toward making home purchase decisions based on where they want to raise children and what kind of lifestyle they want, rather than on the investment potential.

"Focusing on the whole economy, not just housing, there are some long-term benefits of that because it is likely to be a more stable environment than people acting on the temporary benefits and tax strategies. So, it's likely to lead to more stability for the economy," Duncan said, adding that stability is also positive for housing in the long-term.

Nearly three out of four respondents to the survey said they think it will be harder to get a mortgage in the future, up from about two-thirds who thought so at the beginning of last year.

Still, 78 percent of respondents believe housing prices will hold steady or rise in the next year, up from 73 percent in January 2010. Pollsters conducted telephone interviews between October and December of last year with a random sample of about 3,400 American adults.

The government, through Fannie Mae, sister firm Freddie Mac, and the Federal Housing Administration, is now backing almost nine in 10 new mortgages.

The Obama administration earlier this month announced several short-term steps to make those government-backed mortgages more expensive going forward in a bid to lure private capital back to the mortgage market.

The administration also announced plans to phase-out Fannie Mae and Freddie Mac over time and presented Congress with three options for replacing them long-term. Treasury Secretary
Timothy Geithner is scheduled to appear before lawmakers on Tuesday to discuss those options, all of which would make it harder for prospective buyers to obtain a mortgage.

Fannie Mae was created in 1938 to increase homeownership in the United States, and Freddie Mac was created in 1970. The Bush administration seized them in 2008 amid mounting losses from unpaid home loans.

(Additional reporting by Lucia Mutikani; Edited by Ramya Venugopal)

Copyright 2010 Thomson Reuters. Click for Restrictions.

Comments

[Lorianne]

02:49 PM on 03/03/2011

Is this the same as almost 2/3 of Americans think it is a good idea to buy a home right now?

[Crel Vogel]

10:22 PM on 03/01/2011

Remember when the media kept telling you to buy, buy, buy? Remember when the news told you the market will only go up from here? Now is the time to buy because the market has increased by over 50% in 12 months? Remember when the media said it will never stop? Then the market crashed and they kept on with the same "buy, buy, buy" message until it was painfully obvious that the market had crashed.

The cycle goes up and the cycle goes down. The market does it's thing regardless of what the experts tell you. The media, government and the experts are usually well behind the curve. They are behind the curve again.

[Linda from Deerfield]

04:25 PM on 03/01/2011

Whoever sold so many Americans on the idea that a home was an investment in the first place did the nation a severe disservice. A home should be just that -- a home, and nothing more. If it is indeed an investment, then all of the inherent risks go with it, but nobody bothered to educate the public in risk management, and the financial community itself seems either to have forgotten everything it knew, or deliberately kept lips sealed.

[Wupta]

01:34 PM on 03/01/2011

An investment should always create cash flow. This is what an investment should be. In fact I think most stocks also are not real investments but a valuation based on perceptions like residential property. Unless you are getting dividends as in cash flow from any investment it's not an investment. Speculation is another type of economic activity which essentially is a bet which is what most investments in this country have become, it only get value when every else starts buying and driving up the value.

[PalaceOfWisdom]

12:08 PM on 03/01/2011

"Duncan noted that borrowers are swinging back toward making home purchase decisions based on where they want to raise children and what kind of lifestyle they want, rather than on the investment potential."

Buying a home to live in it... what a novel concept!

[blueken]

11:08 AM on 03/01/2011

If the price of real estate is not rising, you have to live in a place for at least 5 years to break even. If you look at your mortgage statement you will notice that very little of your payment comes off the principle in the first 5 years. That's because the bank wants theirs up front. If you subtract a real estate agents fee, you have to live in a house for 10 years to really make money unless prices are climbing rapidly.

[blueken]

11:05 AM on 03/01/2011

About 15 years ago I sold my trophy home. I couldn't afford to heat it and make needed repairs. New roof, new windows, I just figured I would be working for nothing but the big beautiful house. I sold. I bought a condo with the procees. I paid $67K for it. It was a high water mark at the time. I saw condos in my complex go for as much as $190K. Right now I would be very lucky to get $130K for it. I paid off the mortgage in 10 years and I take a nice vacation in the tropics every year. Living within your means is it's own reward. I'm comfortable and I don't need to sell. If I had to sell for $90K, oh well, life goes on.

[blueken]

10:58 AM on 03/01/2011

Boy when you ad in the number of people who's credit rateing is down the tubes it adds up to a frozen real estate market. Thank you Wall Street. Way to earn those bonuses you blood sucking a holes.

[Paul Sta]

10:10 AM on 03/01/2011

Its not if you expect to sell in the next decade.

[Peanut Santiago]

01:09 AM on 03/01/2011

A house is (or should) be a place to live, put down roots, and fix up the way you want. A place to be comfortable and content. It is a place for those who want to stay where they are due to family, jobs, or just like the area. A house is a home for those willing to take the bad with the good and like the idea of "owning" their abode.

If you pay off your mortgage someday, you will have an asset that should be worth something.

Even if it is not paid off, you may be able to sell it and buy something else (though no guarantees).

In short, a house is a place to live that may turn into a nice asset one day.
However, some people do better renting, even if they could afford a house.

A house, especially if you have a big mortgage is really not an investment and it should NEVER be an ATM.

[Grimway]

02:01 AM on 03/01/2011

Spoken like a true drone after the free fall. You learned nothing...

[Paul Sta]

10:11 AM on 03/01/2011

Really you should have told banks, investment banks, realtors and politicians this for the last few decades.

[gabbagabbawill]

09:46 PM on 02/28/2011

Homes are typically not the best investment for all people. If you are smart with money, there are sometimes far better ways to invest.

Some folks can save money renting. It's these people that save money by renting invest their money in other ways, they can get a bigger return.

Interest rates on homes, along with inflation and the pop of the housing bubble, making housing prices more realistic shows that, from an investment perspective, the return may be less than 5%, and in many cases nowadays, a net loss.

Homes are not a great investment, and I'm surprised to hear that more than two thirds of Americans have wised up to this fact.

[RightnotLeft]

09:28 PM on 02/28/2011

Best investment I ever made. Paid 139K it went up to 370K and now has settled at 295K. You just had to have bought smart and within your means. Mine will be paid for real soon.

[Peanut Santiago]

01:16 AM on 03/01/2011

For MY lifestyle, my home is one of my best life decisions.
Even though my house is modest and losing value, it is paid off and will always be worth something.

It helps to live within your means and rarely use credit (maybe a house, car, and replacing a needed appliance). A home should never be an ATM either.

[Mensch99]

08:00 PM on 02/28/2011

Home ownership is certainly not for everyone.
A modest home on a large lot can provide many advantages, especially in retirement. Fruit and berry trees that I planted twenty years ago are now very good providers. A large garden can save on food bills and improve food quality, especially if you learn to can vegetables.
I recommend looking into a 15 year mortgage. You will find that the increase in the monthly mortgage payment may be surprisingly small. Make sure that your mortgage agreement allows you to make payments on the principle at any time. (Make sure that you are paying on the principle and not just making an early payment.) If you can afford it, paying extra, especially at the beginning of the mortgage can shorten the span of the mortgage considerably.

That being said, inflating rates of home ownership is bad public policy. Because I took advantage of the mortgage tax-deduction does not make it a good policy. The growth of the suburbs and ex-burbs has contributed to our dependence on oil and the private automobile.

[DismayedRepub]

06:37 PM on 02/28/2011

A home is the greatest investment you will ever make. The payoff comes when the home is paid off. It’s like winning the lottery and getting a $1000, or more, check each month. It becomes an essentially free place to live. I paid my place off in 2003 and have been able to pay for my kid’s college out of pocket as a result.

The best part of all is that it doesn’t really matter to me how much the house is worth. It can never be underwater unless the county raises my property taxes to more than the place is worth. What housing crisis?

[ThinkForYourself3]

06:40 PM on 02/28/2011

Do you pay $10K a year in property taxes, which only go up?

[DismayedRepub]

09:39 PM on 02/28/2011

Not I don't pay $10K in property taxes. Although I'm sure that with the inflation over the rest of my life I'm probably likely to in my lifetime. If I were a renter my rent would surely go up as well.

[think-it-over]

08:31 PM on 02/28/2011

A home is the greatest investment that some people will make. For others it can be the biggest mistake they ever make, and from the article it sounds like a lot of people still don't understand why.

You and I both made sensible decisions when we bought our houses, but a lot of people didn't. All of those people who bought expensive house they could barely afford because they thought that values can only go up, and then found themselves unable to make the payments certainly didn't make good investments. That's the entire point when the article mentions people not making their decisions based on investment potential. You need a place to live, so buying a home based on that will almost always be a safe thing to do as long as you can actually afford what you buy.

Maybe it's just that the wrong questions were being asked, but I'd say that the 36% who apparently don't think that buying a home is a good investment are completely missing the logic. If you're not going to buy a home you have to rent, thus making it a safe investment for somebody else to buy a home and rent it to you, again assuming you can afford the rent.

[PalaceOfWisdom]

12:54 PM on 03/01/2011

There should be a guideline about never taking out a mortgage that's more than X times your salary. Mine was about 3 times, and I made the last payment at the age of 32. Now the bulk of my income is disposable, and that alone makes it a great investment even though I couldn't sell it for more than the price I paid 9 years ago.

I would say anyone who takes out a loan exceeding 5 times their annual income is asking for trouble.

[cassie reinara]

04:58 PM on 02/28/2011

McMansions? Not a safe investment? If you plan on living in the house for the next 30 years and you don't buy during a bubble cycle, you'll be fine. If you're looking to flip and basing your net worth on your house appreciating 30% YOY, forget about it! Put your money elsewhere.