Housing Market Fall Does Not Deter New Car Buyers
The weak housing market and the sub-prime lending crisis that has banks and financial institutions scrambling to restructure their debt portfolio, does not seem to be significantly impacting current consumer confidence when it comes to their vehicle purchases.
According to an exclusive Buying Advice poll, new car buyers seem undaunted by the weakness in the U.S. housing market. The majority of those questioned, 63 percent, say the housing market predicament will have no impact on their decision to buy a new vehicle.
An additional 25 percent of the sample admitted that they were concerned about the state of the housing market, but it would not impact their car buying decision.
Only 12 percent of respondents said that the state of the housing market would impact their next car buying decision.
Though most buyers seem confident, manufacturers are paying close attention to the housing market downturn and the prospect of a recession. In fact, auto forecasting firm CSM Worldwide is predicting cuts in North American vehicle production up to 20 percent in the second quarter of this year.
Manufacturers cut production to stave off price competition caused by over-supply. So if the forecasted cutback happens, it would because car makers are anticipating a slowing of demand. Though the cuts vary widely by manufacturer, it is believed that every company is currently considering some level of production cut.
Personal finance consultant Claudia Storms of A&S Financial says that troubles in the housing market can play a serious and detrimental role in creating uncertainty in the economy.
“If consumers start believing the economy is heading to, or is in a recession, they become nervous for their jobs. And their response is often to spend less, save more and postpone major purchases. This in turn can make the recession a self-fulfilling prophecy,” said Storms.
But for now, the majority of new car buyers who took our poll remain optimistic. Over 76 percent said that they didn’t believe their credit rating or ability to obtain financing would be impacted by the sub-prime lending crisis or housing market drop.
Only 13 percent expected the lending crisis to make it more difficult for them to get a good interest rate; and 11 percent felt it would be more difficult for them to obtain credit.
Storms agrees with our buyers’ assessment, with some reservations. “Basically the banks that have had difficulty are those that have considerable exposure in the sub-prime market-that is lending to people with less than optimal credit. When the economy is healthy, this is a way for them to achieve better returns through higher interest rates. But, as has been seen, these are the people who take the first hit when the economy goes into a downturn.
“So people with good credit will see no change in their ability to obtain loans for any purchase. In fact, they may benefit from a broader number of lenders chasing their business. However, the squeeze is on for those with less than perfect credit. They may find it harder to obtain financing than they have over the last few years, as financial institutions tighten their lending criteria,” says Storms.
More than half of the surveyed sample said they expected to pay cash or use personal financing to buy their next vehicle. While 37 percent said they were expecting to obtain financing through a bank or dealership. While only 3 percent planned to use funds from a house sale or refinance to buy their vehicle.
“The direct impact on disposable income comes for those who chose adjustable rate mortgages when rates were low and have seen a sudden rise in their housing cost,” said Storms.
“People in that position are really struggling to make ends meet. And they will certainly be looking to postpone the purchase of major items such as a new vehicle,” she said.
When asked which direction buyers expected housing prices would move over the next year, 35 percent of those questioned said they expected housing prices to fall, while 28 percent expected a rise and 35 percent expected the housing market to remain the same.
The survey sample was taken from the over 50,000 consumers who use the web site’s online price quote service each month.