Still Not Many Takers For The Bubble Theory

Spending on home improvement has been a saving grace for the U.S. economy during the past several years. People who would otherwise be tightfisted have spent freely on their homes in the conviction that they weren’t really “spending” at all: They were “investing” in their most valuable asset. The steady rise in house prices has made this thinking fully plausible—so plausible, indeed, that it might even be correct! At the same time, the rise in the value of people’s homes has made them feel less urgency about putting money into savings, which in turn has freed up cash for all sorts of consumer spending. But now, will signs of a deflating bubble in the housing market bring this whole lovely charade to a halt? Only if people believe house prices are deflating. A new Los Angeles Times/Bloomberg Poll indicates they do not, at least yet. As you can see from the chart below, the number of people expecting local house prices to fall in the near future is less than half the number expecting prices to keep rising. The disparity is even sharper among respondents in the $60,000-100,000 income bracket, among whom 40 percent expect prices to rise in the next six months and 14 percent expect them to fall.

The same poll elicited mixed responses when it asked Americans to assess the state of their own finances these days. Overall, 18 percent said they’re “very secure,” 48 percent “somewhat secure,” 18 percent “fairly shaky” and 13 percent “very shaky.” The “very shaky” vote was highly concentrated among respondents with household income under $40,000, with 30 percent of them giving this response. It declined to 6 percent among those in the $40,000-60,000 bracket and was negligible among those with higher incomes. Women usually are gloomier than men on such personal-finance questions, but there wasn’t a significant gender gap in this poll’s responses.