Public Not That Worried About Mortgage Crisis Affecting Own Finances

GALLUP NEWS SERVICE

PRINCETON, NJ -- Federal Reserve officials and other economists gathered before Labor Day in scenic Jackson Hole, Wyo., to discuss the outlook for the U.S. economy at the annual symposium sponsored by the Federal Reserve Bank of Kansas City. At this year's retreat, the discussion topic revolved, quite appropriately, around the role of the housing sector in the economy. In his opening remarks, Federal Reserve Chairman Ben Bernanke explained that "the financial turbulence we have seen had its immediate origins in the problems in the subprime mortgage market, but the effects have been felt in the broader mortgage market and in financial markets more generally, with potential consequences for the performance of the overall economy."

A new Gallup Panel survey reveals that most Americans say they are following the news about the subprime mortgage crisis closely. Overall, Americans appear to be far more worried about the impact of the crisis on the national economy than on their own finances. With respect to any negative impact on their personal finances, Midwesterners express relatively higher levels of worry than respondents in other regions.

In the survey, conducted Aug. 23-26, about 7 in 10 Americans say they are following the news about the home mortgage-lending industry closely, including just 28% who are following it very closely. In the same poll, 45% of Americans say they are following the news about problems with Chinese products very closely.

Impact on U.S. Economy vs. Personal Finances

Americans appear to be far more apprehensive about the impact of the subprime mortgage crisis on the national economy than on their own financial situations. Seventy percent of Americans say they are worried that the problems in the home mortgage-lending industry will have a negative impact on the U.S. economy, with 21% of respondents who say they are very worried and 49% who are somewhat worried.

When considering their own financial situations, about one-third of Americans (35%) say they worry about the impact the subprime lending crisis will have on their day-to-day finances -- roughly half as many as worry about the effect on the national economy. That is the same level of concern Americans express about the impact of the subprime lending crisis on their ability to borrow money and that renters express about their rent. Americans are slightly more concerned that the mortgage crisis could have a negative impact on their investments (42%), with stock investors even more likely to express concern (51%). Forty percent of homeowners are worried about the impact on the value of their homes.

Although exotic mortgage products and subprime mortgages have become more popular in recent years, most current homeowners still rely on conventional 15- or 30-year fixed-rate mortgages to finance their homes. This may explain why most Americans are not worried about the impact of the subprime mortgage crisis on their finances.

Perceptions by Demographic Groups

Respondents in the Midwest express slightly more concern about some of the personal finance items tested in the survey than respondents in other regions. Sources of worry for Midwesterners include the impact on home values, day-to-day finances (though they are statistically tied with respondents in the East on this item), and ability to borrow (statistically the same as respondents in the South and East).

How worried are you, personally, that the problems in the home mortgage lending industry will have a negative impact on … ?

The Mortgage Bankers Association reports that although Indiana, Michigan, and Ohio represent less than 10% of the nation's mortgage loans, the three Midwestern states account for 20% of the country's loans in foreclosure. The loss of manufacturing jobs, especially in the above-mentioned states, and its effect on local real estate markets may explain why residents in the Midwest express relatively higher levels of worry about the impact of the subprime lending crisis on their financial situations.

Lower-income households appear slightly more likely to worry about the impact of the subprime mortgage crisis on some aspects of their finances. Forty-four percent of consumers with household incomes of less than $35,000 per year worry about the impact on their day-to-day finances and 41% worry about the ability to borrow money. This compares, by way of example, to 28% and 30%, respectively, of those who have incomes of $75,000 or higher. Typically, subprime mortgage loans are used for high-risk borrowers with low or inconsistent incomes and poor credit histories, which may explain some of the anxiety that lower-income households report with respect to their future ability to borrow.

How worried are you, personally, that the problems in the home mortgage lending industry will have a negative impact on … ?

Also, when asked about the impact of the subprime mortgage crisis on their day-to-day finances, 50% of nonwhites compared with 30% of whites say they are either very or somewhat worried.

Bottom Line

Findings from the Gallup Panel survey suggest that most Americans would likely be interested in what the macroeconomic elite gathering in Jackson Hole had to say about the overall impact of the subprime mortgage crisis. Indeed, Americans appear to be more concerned about consequences of the crisis on the national economy than on their own pocketbooks. In his recent speech in Wyoming, Fed Chairman Bernanke remarked that in addition to the deterioration of the subprime mortgage market, "the cutback in residential construction has directly reduced the annual rate of U.S. economic growth about ¾ percentage point on average over the past year and a half." The fact that Americans are less concerned about the impact of the subprime mortgage situation on their own personal finances may mean the subprime mortgage situation will be less of a damper on consumer spending than might have been thought. Further deterioration in the residential mortgage markets and continued decline in home values, however, could inevitably affect consumers anyway. And as results from the panel show, a potential decline in consumer spending may be more pronounced in parts of the Midwest. But for now, the true impact of the subprime mortgage crisis remains difficult to ascertain.

Survey Methods

Results are based on telephone interviews with 1,001 national adults, aged 18 and older, conducted Aug. 23-26, 2007. For results based on the total sample of national adults, one can say with 95% confidence that the maximum margin of sampling error is ±4 percentage points.

For results based on the sample of 828 homeowners, the maximum margin of error is ±4 percentage points.

For results based on the sample of 722 investors, the maximum margin of error is ±4 percentage points.

For results based on the sample of 165 renters, the maximum margin of error is ±9 percentage points.

In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.