Homeowners in denial
According to the latest Pew survey, only a minority of Americans think that their home has fallen in value since the recession began in December 2007. And the poorer and less educated you are, the less likely you are to think your home has fallen in value:
I don’t have hard statistics on this — I don’t know whether they exist or how they would be put together — but I think it’s fair to say that the overwhelming majority of US homes have fallen in value since the start of the recession. Which means, essentially, that most Americans are wrong.
What does this mean? During the boom, Americans were hyper-conscious of how much their homes were worth. During the bust, they’re in denial. This is probably good for national happiness, but it’s also bad for the future of the housing market — and partially helps to explain why houses sit on the market for so long at a price no one is willing to pay.
This syndrome also contributes, I think, to the relatively low rate of jingle-mail, or underwater homeowners simply walking away from their homes and leaving the bank with the house. It’s the economically rational thing to do — but only if you know that you’re underwater. And given that it’s non-trivial to work out how much your house is worth, I can easily imagine that a large percentage of underwater homeowners don’t know that they’re underwater.
While ignorance of depreciated property values seems to be prevalent everywhere, it’s particularly common among those who didn’t go to college and those who earn less than $30,000 per year. (I don’t believe Pew’s statement that “the recession-era decline in home values has hit those with higher annual household incomes harder than those with lower annual incomes” — not without further evidence, anyway.) It’s probably no coincidence that these are exactly the people who were most likely to be sold unsuitable subprime mortgages: if you’re looking to rip someone off, it’s a good idea to look for a mark who doesn’t have the education or sophistication to understand what you’re doing.
Now here’s the kicker: if you asked me the question in the poll (“Thinking about the recession, which began in December 2007, is your home worth more or less NOW than it was BEFORE the recession began, or is it worth about the same?”) about my own place in New York, I’d probably say it was worth more. I don’t honestly know: I wasn’t particularly following the East Village property market in December 2007, and I’m not doing so now, either. But hey, that tide of money sloshing out from the New York Fed has surely had some effect, no? And it feels nice to think that I — just like everybody in Lake Wobegon — am bucking the national trend. Evidently a lot of other Americans feel much the same way.