Majority of Americans Still Optimistic About Home Values Over Next Few Years, According to RBC Capital Markets Survey 

 

National Survey Projects Consumer Spending

 

NEW YORK, September 27, 2006 - Despite the well-documented pullback in the real estate market, consumers' real estate appreciation expectations may still be too optimistic, according to the Second Annual RBC Capital Markets Consumer Survey. Nearly half of all homeowners still expect at least 5 per cent annual increases in their home values over the next few years, but this is down from almost 60 per cent of homeowners last year.

 

The national survey of 1,003 Americans also revealed that 25 per cent of homeowners have already paid off their mortgage - twice the number of people with risky variable and interest-only mortgages (13 per cent). "While it's true that it may be easier to pay off a mortgage in Selinsgrove, Pennsylvania than it is in NYC, we were still very surprised that the number was so high," said Scot Ciccarelli, managing director and equity research analysts for RBC Capital Markets. "This goes against the general belief that most Americans are leveraged to the hilt."

 

More than 80 per cent of all homeowners surveyed have at least $50,000 of equity built up in their homes and almost 60 per cent believe they have at least $100,000 of equity in their homes, underlining how much home equity has been built up in the U.S. over the last several years.

 

However, those who entered the end of the housing cycle with variable rate and interest-only mortgages are clearly at risk once their mortgages renew. Nearly 40 per cent of those with variable rate and interest-only mortgages are concerned with their ability to meet higher payments, while 13 per cent haven't even considered the ramifications. While this is a fairly small segment of the overall survey (approximately 6 per cent), it suggests material risk to this segment of the population.

 

"While real estate expectations are lower than they were last year, consumers still seem optimistic despite what we are seeing in the marketplace," said Ciccarelli. "Declining real estate values could eventually impact consumer spending as people don't feel as wealthy as they used to and become less likely to borrow against the equity they have built up in their homes."

 

Ciccarelli also noted that while people have built up substantial home equity over the years, he is very concerned about those people with variable and interest-only mortgages.  "Many of them seem ill equipped to handle the higher payments they will eventually incur."

 

The survey was conducted in September and released today at the RBC Capital Markets Consumer Conference in Orlando, Florida, which is being attended by institutional investors and business executives from across the U.S.

 

Consumer Spending

 

Beyond housing, the survey results yielded several other intriguing findings:

 

"Getting Exactly the Right Product" is far more important to consumers than traditional shopping attributes like brand, convenience and service. More than half (51 per cent) of survey respondents indicated that "price" remains their single biggest focus when they are shopping. However, 35 per cent indicated that "getting the right product" was most important to them, far more than the other three aforementioned attributes.

 

More importantly, those with the highest incomes favored "getting the right product" over everything else, including price (47 per cent vs. 33 per cent). In addition, those that favored "getting the right product" were also the most avid users of e-commerce, as 38 per cent of this group indicated that they use the Internet more for shopping than they once did compared with just 20 per cent of the "price" driven consumers.

 

"People usually know what they want and the Internet is great for targeted purchases", said Ciccarelli. "It also seems to play less of a role in searching for the best price for something than we would have thought. These findings underscore the importance for companies to have a strong multi-channel distribution strategy."

 

Other survey results include:

1. Those making over $100,000 were three times as likely to save money on a regular basis as those who earned less than $50,000 (62 per cent vs. 20 per cent). In addition, almost half of those in the lower income bracket indicated that they were living paycheck to paycheck or were forced to dip into savings to make ends meet.
    
2. Half of respondents indicated that they didn't expect to change their spending habits over the next year. However, for those who do expect to change, the spending for most categories is expected to decrease rather than increase, with two notable exceptions - home improvement and automobiles.
    
3. While consumers' worry list is large, geopolitical tensions and terrorism (28 per cent) trumped headline topics such as gas prices (20 per cent), rising medical bills (20 per cent), employment concerns (13 per cent) and interest rates (9 per cent). 

 

The RBC Capital Markets survey was conducted September 7-15, 2006, and included 1,003 online respondents. Stamford, CT-based InsightExpress assisted RBC Capital Markets in the survey. The margin of error was ±3.08 per cent.

 

About RBC Capital Markets
RBC Capital Markets is the corporate and investment banking arm of RBC and is active globally in fixed income, foreign exchange, infrastructure finance, structured products, metals and mining, and energy. Its North American equity underwriting, sales, trading and research business dominates the Canadian market and supports a significant and growing franchise in the U.S. middle market. The firm's international fixed income, structured products and treasury businesses are managed from London, which is the centre of a 24-hour trading platform with major hubs in Toronto, New York and Sydney.

 

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For further information or full survey results, please contact:

Kevin Foster, RBC Capital Markets, (212) 428-6902, kevin.foster@rbccm.com
Loretta Healy, The Hubbell Group, (781) 878-8882, lhealy@hubbellgroup.com