Get Past the Negative Hype on the Housing Story

Today's headlines direct plenty of attention to a housing survey conducted by the Associated Press and AOL Money & Finance. News organizations typically write their own headlines, and most went with the extremely bearish tone of the AP article by Alan Fram: "Mortgage Payments Worry Many."

According to Fram's article: "One in seven mortgage holders worry that they may soon fail to make their monthly payments."

The article's conclusion: "In an ominous snapshot of how the sagging real estate market and sour economy are intersecting, the Associated Press-AOL Money & Finance poll found that 60% said they definitely won't buy a home in the next two years."

More Dread in Heavy Type

Headlines from other news sources included this one from MSNBC.com: "Poll: Growing majority avoid buying homes." And the Ann Arbor News chimed in dolefully with the headline "Housing Gloom Grows."

The Data in Fine Print

An objective review of the survey data suggests a very different interpretation. I will take a few of the statements in the AP article as examples:

• "One in seven mortgage holders worry that they may soon fail to make their monthly payments."

This is a true but misleading statement. There was no similar result from the prior survey about 18 months ago, so there is no basis for comparison. The writer chose to combine the "extremely worried" category of 5% with the "somewhat worried" category of 9%. Of the respondents, 70% were not worried at all, and the remainder were not too worried. Fewer than half of the respondents and only about 63% of homeowners had a mortgage.

• "60% definitely won't buy a home in the next two years, up from 53% in the prior survey."

Here the author includes only the extreme category. If one combines "definitely not" and "not too likely," the difference between the two surveys is 77% vs. 74%. This is not a statistically significant difference for the sample size reported.

• "Only 11% are certain or very likely to buy soon, down from 15% two years ago."

This time the two categories are combined to make the difference seem more important.

• People are "unsettled" about housing values. People saying that prices are "about right" are now 35% of the sample. Half say homes are overpriced, while one in 10 say houses are underpriced, twice as many as in the prior survey.

Once again, the statements are technically correct but do not give the picture. Look at the table below and see what you conclude. It would seem that there is some increase among those who see value, but we lack a good historic comparison from a time of more normal valuations.

Q20. Do you think the housing market in your area is overpriced, underpriced, or do you think the market is just about right?
All Respondents		19-Sep-26 2006
===========		===========
Overpriced	47%	46%
Underpriced	11%	5%
About right	35%	45%
Don't know	7%	4%

• "The growing reluctance to dip into the housing market seems to stem partly from worry that housing prices will continue falling."

This is a very important point. Many analysts act as though nearly everyone expects falling home prices, so they are afraid to buy. In fact, while the table shows more people in the falling-price camp, that group is still a distinct minority.

Q21. During the next two years, do you think housing prices in your area will go up, go down or stay about the same?
All Respondents		19-Sep-26 2006
===========		===========
Go up	39%	49%
Go down	24%	18%
Stay about the same	33%	32%
Don't know	5%	1%

Not So Dramatic

It is always wise to look at what has been left out of a story. Here are a few points that one can readily see by reading this PDF file of the survey results.

• Home ownership is at 70%, the same as 18 months ago.
• People think it is a good time to buy a home, 59% to 34%.
• The number who think it is "very" or "somewhat" difficult for first-time homebuyers to afford a home is almost unchanged from 18 months ago -- 82% vs. 80%.
• Only 11% of those with mortgages have adjustable rates; 18 months ago, the figure was 22%. This suggests that there has already been a lot of refinancing.
• Among homeowners with adjustable-rate mortgages, those who are worried about making their payments after an increase is 36%, exactly what it was in the prior survey.

These conclusions are far different from the ones that were selected to support the bearish tone of the story. I read examples like this every day. The negative story seems more newsworthy, and the author can always find a few anecdotal cases to provide some color.

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Jeffrey Miller is president and CEO of NewArc Investments, a registered investment adviser, and Capital Markets Research.

Miller writes about the market, interpreting data, and finding the right expert at his blog, "A Dash of Insight. He is writing about the 2008 presidential campaign and the implications for individual stocks and the market at Election Stocks. His investment company, with programs for both individual and institutional investors, is NewArc Investments.

Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Miller appreciates your feedback; click here to send him an email.