Saturday, October 15, 2005

WashingtonPost: 'Most Owners Treat Debt Responsibly, Survey Shows'

In today's Washingpost there is an article titled 'Most Owners Treat Debt Responsibly, Survey Shows' .

New consumer research suggests that some of these images are just plain wrong. A nationally representative statistical sample of 1,347 American homeowners polled by Opinion Research Corp. Of Princeton, N.J., from Sept. 22 to Sept. 26 found that while mortgage-burning parties may be out, the overwhelming majority of homeowners have plans to pay off their mortgages within specific timelines, and that a surprising chunk of them -- 25 percent -- already have.

What jumps out of the survey is the relatively sober approach most owners are taking to managing their mortgage debts. For example, 38 percent of them say they have already paid off more than 50 percent of their original home financing, including first and second mortgages and equity lines. In answer to another question, 28 percent say they expect to be fully paid off sometime during the coming 10 years.

Only 4 percent of all owners say they have no plan or expectations about paying off their mortgage -- they just haven't thought about it -- and just 6 percent expect to extinguish their debts solely by selling the property.

Debt levels in the survey were nowhere near as high as preconceptions might suggest. Just 12 percent of respondents reported first and second mortgage totals in excess of $150,000; 19 percent have $75,000 to $150,000 in unpaid home loan debt; and 30 percent have less than $75,000 outstanding. Even in California, the survey found that slightly more than 30 percent of owners are carrying $150,000 or more in mortgage debt.

Those numbers don't resemble the irresponsible credit junkies portrayed by some critics and housing-bust doomsayers. Yet the findings don't surprise analysts who keep a close eye on household credit patterns, delinquency rates, foreclosures and debt management.

This phone survey was commissioned by a mortgages company. The other issue with this survey was that they asked people about debt and other financial issues. Often, people are unaware of their financial obligations. The survey people did not confirm that people knew the answers to these questions or were telling the truth.

Whatever they choose, if Ditech's survey findings are correct, they won't be doing it casually. As Fishbein put it, "people take their [mortgage] responsibilities very seriously." That's why delinquency and foreclosure rates remain relatively low, despite record-setting housing prices. The sky-is-falling pundits and sages who think otherwise probably aren't talking to America's homeowners
Am I a 'sky-is-falling pundit'? I do opine that there will be significant price declines in the bubble markets and that there will be a recession starting next year.


  1. David

    believe me most so called business writers still are unable to fathom what even a stagnation in housing will do.
    Martin Wolk-chief business writer for MSNBC a hack basically for MSFT really says he sees no chance for a recession next year. If he was so saavy- and well read- he would pick up on the growing housing inventory and the slash in prices currently going on.You are not a doom and gloomer- but a realist. Back in January 2000, Mr. Wolk and most other business wtiters went along with the consensus that saw the IT tech boom continuing. Martin Wolk is full of it.

  2. "You are not a doom and gloomer- but a realist"

    Well said Skytrekker. After reading my blog, one of my new friends in the neighborhood asked me "Are you a world is ending type of guy? Were you stockpiling food for Y2K?"

    No, I am not a world is ending type of person. No, I did not stockpile food for Y2K. Although at that time I thought there would be more problems involving computer systems.

  3. By the way David

    I sold my shares of MSFT about a month ago
    I became tired of the Bill Gates junk of MSFT Internet Explorer, outlook express- which is a haven for spyware, and assorted denizons, which MSFT cares little of in protecting the consumer. I tried Firefox, and Netscape 8.
    I have configured Netscape 8.03- and settled for Netscape 8.03- AND have reduced the amount of unwanted hackers by 85%. Bye MSFT and Bill Gates, more economic blood suckers, who bleed the common people.

  4. That Post article is typical of the crud that the media spews during a bubble. I remember that type of thing during the stock bubble seven years ago too.

    First off, the tone of the article is that it is rebutting the *conventional wisdom* that people are using their homes as piggy banks, etc. That is NOT the conventional wisdom. If I just read the Post, I might have never even heard that idea.

    Second, the results are not reported by age. This is critical. Of course many older homeowners have very little debt left. And when the author did report results by geography (mentioned for California), the results were quite different.

    Third, just because someone has a "plan" or an "expectation" of paying off their debt in a time limit, does not mean that plan is remotely realistic or feasible.

    This kind of article makes me so grateful for the internet. I remember the pre-internet stone age when this kind of thing was all you could get. You knew it was wrong somehow, but you didn't know anyone else who agreed with you.