Viewpoint: Is Housing Crisis Just a State of Mind?


Is it possible that the housing crisis is really just a problem caused by our state of mind, not the state of the economy? Is the thing stopping people from buying houses nothing more than their perceptions? Apparently, to some extent, yes.

We are having what, if economists talked like this, could be described as an irrational fear of commitment.

The facts: The recession is considered over, the country's gross domestic product is growing, unemployment is down and consumer spending is up. Yet, the housing market remains comatose. The only explanation is that we are either all still unemployed and not being counted or we're scared out of our boots.

Want some more evidence that we're just one giant anti-anxiety pill away from fixing what ails the housing market?

1. The number of applications for mortgages is down.

It's becoming a broken record: Interest rates are at all-time lows yet nobody is applying for loans. Yes, lending standards are tighter now -- tight enough to put the kibosh on almost 16 percent of all home deals that open escrow -- but the bigger problem is that potential buyers are afraid to even try to get a loan. Loan applications for home purchases were down 10 percent in a week, according to data from the Mortgage Bankers Association's Weekly Mortgage Applications Survey.

Buyers are just plain scared that banks won't approve their loan. This is the grownup equivalent of hiding in the playground bushes during recess because you think the cool kids won't pick you for their team.

2. People don't believe the worst is over.

They are afraid that home prices might fall further. They are afraid that they could lose their jobs tomorrow. They are afraid of looking like a chump, buying when nobody else is buying.

Without question, the days of house-flipping are over. If you are buying, you are buying for the long haul. Remember this: Rents will most certainly go up -- that's why investors are buying properties like mad nowadays; but mortgages that are locked into the current record-low rates will not. If you are planning on staying put, doesn't it make sense to buy?

As for losing your job tomorrow, ask yourself this: Really? Do you really think that's likely? While new jobs aren't being created with anything close to wanton abandon, neither are they being eliminated with the gusto of three years ago. Do you really want to put your life on hold while you wait to see if The Man sneezes in your direction?

Looking like a chump is a tough one. No one wants to be the last soldier killed before the war ends and no one wants to be a homebuyer who bought when prices were still falling. But that gets back to the long-term strategy. You aren't buying for now, you are buying for the many years to come.

Fear can be paralyzing, but so can group-think. If you read how nobody is buying, you figure all those nobodies must know something. Yeah, they know how to be lemmings.

3. Consumer confidence has plunged, yet we are spending again -- just not on houses.

A recent Nielsen poll found that nine of 10 Americans think the country is still in a recession. The memo went out a while ago that the recession officially ended in June of 2009. Pain and misery have clearly lingered and depressed consumers don't spend money. But if we're all so depressed, how do you explain why consumer spending rose in the third quarter by 2 percent. We're even back to our old ways regarding charging and not saving: Consumer credit is back up to 2009 levels and our savings rate has dropped to 3.6 percent, the lowest level in four years. I see our old ways creeping back, don't you?

We may not be happy, but we're spending again. I have but one question: If you are willing to hit Macy's with enthusiasm, why not the housing market?


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