Sunday, February 06, 2005

Investors worry but still favor real estate

Plans to buy belie price bubble fears


BY MARY UMBERGER
CHICAGO TRIBUNE

Here's some good news: People with a few bucks in their pockets say they're confident enough in the economy to begin investing in it again.

Here's some bad news: The same folks believe there's a real estate bubble lurking out there, lying in wait to suck the air out of their home values.

And here's some weird news: Many of the people who say they're worried that housing prices are going to skid are also saying that's exactly where they plan to put their money.

That's the essence of a new quarterly poll of affluent Americans by a Cleveland investment firm. The McDonald Financial Group Affluent Consumer Confidence Index queries individuals whose incomes are at least $150,000 or personal assets -- not including their homes -- equal at least $500,000.

The survey's index suggests that their overall confidence in the economy is up 7 points, after dropping 13 points during the presidential campaign. In a pronouncement that would be music to any investment firm's ears, the survey concludes that 30 percent of affluent Americans say they'll put money into the stock market.

Their real estate worries don't show up until deep into the report.

"Real estate bubble fears are now on par with their highest point in the survey, with 56 percent of affluent Americans now saying there is a real estate bubble (up from 54 percent in October, tied with the survey's high point in July of 2004)," the survey said. "Thirty-four percent are concerned that rising interest rates will cause a significant drop in housing prices." The percentage of those who call themselves "very concerned" jumped five points, to 12 percent.

So, will they flee from real estate? Apparently not. The proportion of affluent people who said they plan to buy property jumped from 20 percent in October to 24 percent in recent weeks.

"That's pretty consistent with what we've found all along" in the two years that McDonald Financial Group has conducted the survey, according spokesman David Legeay. "They say, 'Yes, we're afraid of it, but we're going to continue to invest in real estate.' There's a definite disconnect there. I have trouble explaining it."

"When you look at the data, it's clear the people we surveyed feel really good about their local economy, yet they're concerned on a national basis," Legeay said. "Maybe it's a local feeling that all is good for me, but I'm worried about everybody else."

Some skeptical housing-industry watchers might see this duality as a form of irrational exuberance. Legeay shrugs, but he knows one thing for sure: The refinance whirlwind, at least at the high end, seems to be spent. "About 12 months ago, some 30 percent said they were going to refinance," he says. In the current survey, that number drops to less than 1 percent.