Chart of the Day: The Plummet in Housing Market Sentiment

Polls are sometimes irrelevant. For example, a poll about whether most people think global warming is a problem won't make it any more or less a problem in actuality. That's up to science, not popular opinion. But in economics, sentiment does matter, as it can drive demand, which has a very real effect. So when a new poll reveals that housing market sentiment has plummeted since just last November, it could have significant implications.

According to the latest Trulia/RealtyTrac/Harris Interactive foreclosure attitude poll, Americans have become much more pessimistic about the housing market:

housing market recov 2011-05 trul-realtt-harris.png

One common immediate reaction to this chart would be serious concern. More than half of Americans don't see a housing recovering until 2014 or later. Presumably, they won't be crazy about buying a home until the market is near recovery, which is to say that you can take them out of the equation until at least 2013. Another 24% doesn't see the market recovering until 2013. So take them out of the equation for the rest of this year and next year. That leaves a measly 23% of Americans who are optimistic about the housing market recovering in the relative near-term.

What looks even worse is that in November, just five months earlier, the sentiment was much cheerier. At that time, just 34% thought the market would continue to struggle through the end of 2013. In April, that percentage increased to 54%. And that entire 20% increase pushed people from the two most optimistic categories into the more pessimistic categories.

However, there's also an alternative way to look at this poll. Perhaps some of these people are just thinking, "Well, the housing market is rough right now, but I think it will be better in X years." In April, that for that X to be three, the percentage was 54%. In November, however, the percentage of people who thought the housing market would be better in three years was 58% (the percentage who thought the housing market would be better in 2013 or later).

So really, it just depends how people are thinking here. In both November 2010 and April 2011, most people believed that a housing market recovery was still at least three years off. That might just mean that they aren't going to express any optimism until things begin to improve or at least stabilize. In that sense, sentiment is consistent.

Still, this poll shows that housing market confidence is very low. There's no getting around that fact. So unless the downward trajectory of home prices changes, we shouldn't expect buying to pick up substantially in the near term.

On a conference call to discuss the new report, Trulia CEO Pete Flint and RealtyTrac SVP Rick Sharga both agreed that prices aren't likely to stabilize for about 18 months. Only then will we begin to see optimism improve. If this poll is an accurate reading of sentiment, however, their 2013 guess for the beginning of recovery might be a little too optimistic: 54% of respondents disagree. And in economics, perception can sometimes become reality.