Uncertainty and apprehension appear to be influencing the economy as much as reality according to the latest National Housing Survey (NHS) conducted by Fannie Mae.  The survey found growing pessimism about employment, the economy, and the role of housing in individual lives; a concern that appeared to mount throughout the second quarter and into July. 

The telephone survey was conducted with 3,002 persons in the April through June period and included both homeowners and renters and a subset of homeowners who were underwater with their mortgages. It is designed to assess respondents' confidence in homeownership as an investment, the current state of their household finances, views on the U.S. housing finance system, and overall confidence in the economy.

Sixty-four percent of respondents said that the economy is on the wrong track, the highest number in the six-quarter history of the survey.  In the wave of interviews conducted in July for the third-quarter report this number rose to 70 percent.

Persons reporting concern about their job security, 26 percent of those interviewed, expressed more anxiety and pessimism across the board than those respondents who were not concerned about losing their jobs in the next 12 months.  For example, 33 percent of employment-concerned Americans thought they had sufficient savings compared to 49 percent of the others and 44 percent said their household expenses had increased significantly over the last year while only 35 percent of the unconcerned made that statement.  Concerned respondents were also less likely to view this as a good time to buy a house (65 percent against 76 percent for those who were not concerned about their employment) and more likely to rent than to buy the next time they moved (34 percent versus 24 percent.)  

In general, respondents are not optimistic about the housing recovery.  Only 26 percent expect home prices to rise over the next year compared to 30 percent who expected that in the first quarter. Those who do anticipate an increase have lowered their expectations from an average of 0.9 percent to 0.4 percent.  The number who expected interest rates to rise also decreased from 49 percent to 46 percent.  Forty-four percent of respondents think rentals will go up over the next year, one percentage point more than in Q1 and the average increase expected rose from 3.2 percent to 3.5 percent.

Twenty-six percent of mortgage borrowers report that their mortgage is underwater, an increase of 3 percentage points since Q1.  These borrowers are more likely to report that they are stressed by their debt, 42 percent, than the universe of mortgage borrowers, 31 percent.  These underwater borrowers are also more likely to say they have considered defaulting on their mortgage (9 percent) than are all mortgage borrowers (4 percent.)  This may be influenced by the fact that 57 percent of underwater borrowers know someone who has defaulted on a mortgage versus 49 percent of all mortgage borrowers.  Other studies have indicated that knowing a defaulter makes it more likely a homeowner will himself default.

Sixteen percent of all respondents reported significantly higher household debt than one year earlier, but 19 percent said their debt had significantly decreased; 25 percent reported an improving overall financial situation while 26 percent reported it had worsened.  There was a large disparity between homeowners and renters with 36 percent of the latter reporting improvement against only 18 percent of homeowners.  A quarter of each group reported their personal finances were worse.  Homeowners who were underwater reported their situations had deteriorated over the last year in 31 percent of the cases.  Looking ahead, 39 percent of those interviewed expect their financial situation to improve over the next year, down from 42 percent, while 16 percent expect it to decline, a one point drop from the last quarter.

"Consumers are more cautious due to concerns over employment and household finances," said Doug Duncan, vice president and chief economist of Fannie Mae. "As a result, consumer spending, which accounts for about 70 percent of the economy, ground to a halt in the second quarter. Consumers are more hesitant to take on additional financial commitments, and a setback to confidence means a setback to the recovery of the housing market.

"Survey data make clear the relationship between home purchase demand and concerns about the stability of employment. Dissatisfaction about the direction of the economy and related employment fears are damping demand to buy homes and slowing the recovery. People who believe owning is a better deal than renting are nonetheless planning to rent, at least until things improve it would seem."

More than 50 percent of the renters responding to the survey live in single-family homes while another 35 percent live in small (under five units) multi-family housing.  Only 11 percent reported living in large (50+ unit) complexes.   Single-family renters tend to have about the same income levels as multi-family renters, but are younger and are much more likely (47 percent to 27 percent) to have children living at home.  Single-family renters are more likely than multi-family renters to consider owning a home as being more sensible than renting (74 percent to 68 percent) but both groups plan to continue renting.  Fifty-four percent of single-family renters and 67 percent of multi-family renters say they will rent rather than buy their next home.  

Both groups of renters are pessimistic about the chances of financing a home.  More over 70 percent say it would be somewhat or very difficult for them to get a home mortgage compared to 53 percent in the general population and 56 percent of underwater homeowners.  While roughly the same percentage of each rental group cited debt, down-payment, income, and job security as reasons a mortgage might be unobtainable, 33 percent of single-family renters cited their credit history as a hurdle compared to 20 percent of multi-family renters.

Minority respondents were more like to report being underwater on their mortgages than non-minority by 31 percent to 23 percent.  They were also more likely to live in states with higher levels of negative equity and were likely to report lower family household incomes with 44 percent stating 2010 incomes under $50,000 compared to 23 percent of non-minority households in that income category.  They did not, however, have significantly different types of mortgages than the population as a whole.  The vast majority of minorities and the general population (87 percent and 89 percent) hold fixed-rate, level amortization mortgages and there was no more than a two point variation in the percentage of any category of riskier loan held by the two groups.  Hispanic respondents also exhibited greater job insecurity than either the general populations or the Black sub-group.  Thirty-six percent of Hispanics were concerned about losing a job over the next year compared to 26 percent of the other two groups.