Experian-Gallup Personal Credit Index Suggests 'Housing Bubble' Could be Widespread

COSTA MESA, CA – Experian® and The Gallup Organization today announced that consumer sentiment about their credit showed little change, with the Experian-Gallup Personal Credit Index(SM) showing only a slight improvement from the prior month. In the benchmark measure published two months ago, the Personal Credit Index stood at 100, but it dropped sharply last month to 82 and has moved slightly upward this month to 86. More results for the Experian-Gallup Personal Credit Index can be found at http://www.PersonalCreditIndex.com.

“The slight change in the Personal Credit Index suggests that consumers’ feelings are stabilizing and perhaps they are experiencing a wait and see outlook with regard to changes in the economy,” said Ed Ojdana, group president of Experian Interactive. “With short-term interest rates and housing prices continuing to rise, it’s understandable if consumers are being cautious.”

In addition to measuring the Personal Credit Index this month, the Experian-Gallup survey asked consumers about the housing market and mortgages. Most consumers expect housing prices and mortgage rates to rise in the next year. Only five percent of consumers expect housing prices to decline in the next year, while 70 percent expect them to increase, and another 24 percent expect them to remain steady. Among those who expect changes, most say the increases (or declines) will be modest, though about a quarter of all consumers expect housing prices to rise 10 percent or more in their area.

Most consumers, 75 percent, also expect mortgage rates to increase modestly over the next year, while only three percent expect them to decline. About half who expect an increase predict it will be no more than one percentage point, while a third say from one to two points, and the rest think it will be higher than that.

“It’s gratifying to see that most consumers are aware that interest rates are on the rise and that mortgage rates will be affected,” said Dennis Jacobe, chief economist for The Gallup Organization. “However, since they expect an increase, consumers should now consider alternatives to variable interest rate mortgages. If they wait until rates are one or two points higher, they may already be suffering financially.”

Most consumers apparently recognize the long-term risks with variable rate mortgages, preferring a fixed rate mortgage. The poll shows that only 14 percent of all consumers currently have a variable rate loan on their homes — including seven percent with a variable rate mortgage, and the rest with variable rates on either their home equity loans or accounts.

In addition, among consumers who plan on borrowing money against their homes in the next six months, either because of buying a new home or refinancing, about one in five say they would be likely to take out an adjustable rate loan or mortgage — with a low interest rate initially, but which would increase substantially after a fixed period of time.

“In addition to rising interest rates, there has been a lot of talk about a housing bubble,” said Jacobe. “Our latest survey showed that few consumers are aware of a possible housing bubble. This is troubling because if there is a housing bubble some consumers with mortgages could end up upside down, meaning they will owe more on their mortgage than their home is worth.”

Only about a quarter of all consumers have heard of a potential “housing bubble,” with 65 percent saying they have heard nothing about it, and another 12 percent saying “only a little.” However, when told that a housing bubble is when the prices of houses have increased so quickly and gone so high that it’s like a bubble that could burst and suddenly there could be a big drop in the price of houses, about four in ten consumers say it is either very or somewhat likely that such a situation could occur in their area within the next three years.

Lower income consumers (under $40,000 annual household income) are most likely to say a housing bubble could occur in their area — 46 percent express that view, compared with about 30 to 33 percent among consumers with higher incomes.

More information about the Experian-Gallup Personal Credit Index can be found on the official Web site at http://www.PersonalCreditIndex.com.