The Reality of Real Estate and Foreclosures

Despite all the media attention recently towards the housing market, focusing on record foreclosures rates, increasing mortgage rates and the depreciation of home prices, the majority of Americans do not believe that there is a real estate slump. The majority of Americans (55%) are convinced that their home continued to rise in value over the past year. However, homeowners attitudes don’t reflect the findings of home prices throughout the nation, which show that the median single-family home is lower than it was this time last year. Homeowners are confident about the value of their homes, and they believe that what little slump that the housing market is in will correct itself soon.  Over 2/3 of homeowners said they believe they could sell their homes within 6 months for the price that they believe it is worth. However, many houses are on the market right now, and that number is just growing. Records show that the average house is on the market for 7 months-up from 5 to 6 months that it stayed on the market last year. Most homeowners are still confident that their homes will continue to rise in value over the long-term-85% are confident that their home value will rise over the next 5 years, and 63% still believe that buying a house is a good investment. The differences between what Americans view of the current market and the reality can affect their buying practices, which in return affects the housing market and the overall economy-research shows that the majority of consumers have not been cutting back on their spending.  In the past few years, real estate price increases have funded much of the consumer spending, as homeowners dipped into their rising home values through home equity loans, cash-back refinancing, and lines of credit. By doing this in the first quarter of 2007, homeowners added mortgage debt of $510 billion. The current ratio of home value-equity now sits at 52.7%-the lowest in several years, and many homeowners are now unable to tap into their home equity and could be facing foreclosures. Of course, the drop in home equity is a result of falling home prices. While the majority of Americans have not cut their spending, and are not worried about the housing market, about 16% have cut back their spending habits as a direct result of the falling home values. However, this percentage continues to be the minority-even the real estate organizations continue to be optimistic, saying that the housing market will turn around before the end of the year, and the foreclosures rate will decrease before the end of 2007.