Yesterday I heard a segment of NPR’s Talk of the Nation that discussed the housing market in America. The host and his guests discussed how housing prices may have bottomed out, how buying a home is cheaper than renting in some areas, how buying a home and making those monthly mortgage payments is a good step toward financial discipline and accumulation of personal wealth, and other factors that weigh in favor of buying a house. They seemed mystified about why American consumers aren’t flooding into realtor offices to snap up homes at bargain basement prices.
I don’t think there should be much mystery about why the housing market is in the doldrums, however. In my view, it is almost completely attributable to a lack of confidence and optimism about the future. Many people in America have been deeply rattled by the economic turmoil of the past few years. They’ve seen friends thrown out of work and bright young college graduates unable to find a job. They’ve seen the value of their 401(k) portfolio on a roller-coaster ride and, if they are an existing homeowner, they’ve seen the value of their home fall with the bursting of the housing bubble. What’s more, over the past few years they’ve heard assurances from economists and politicians about an economic recovery and confident predictions of dropping unemployment rates and robust economic growth, and those bullish assurances and predictions have consistently proven to be unfounded.
The old saying “once bitten, twice shy” applies here. Americans don’t want to bet right now on economic growth; they understand that we teetering on the brink of dropping into another recessionary period. They just want to hang on to their jobs, hunker down, and wait until things improve in the real world and not just in some academic’s econometric models. Signing your name on a 30-year mortgage is a really big step. Why would you want to do it if you don’t have any confidence that you will keep your job and that better economic days lie ahead?