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U.S. Housing Market Stabilizing Despite Dip in Consumer Confidence

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U.S. Housing Market Stabilizing Despite Dip in Consumer Confidence
4 min. read
U.S. Housing Market Stabilizing Despite Dip in Consumer Confidence

Image: Trong Nguyen / Shutterstock.com

October marks the third-straight month of decreasing U.S. consumer confidence, according to data from the Conference Board’s Consumer Confidence Survey®. Despite this, the housing market looks to be stabilizing, thanks to lower mortgage interest rates.

Decline in Consumer Confidence

The consumer confidence index is an economic indicator determining Americans’ attitudes about the current and future state of the country’s economy. It is calculated based on a monthly survey of 5,000 households and provides insights into peoples’ spending and savings patterns. An index higher than 100 means consumers are more optimistic about business and employment developments and thus more inclined to spend, while anything less than that means they’re rather pessimistic and prefer to set their earnings aside.

Concerns about job availability and security – as well as the economy overall – appear to have affected consumer confidence again in October, after also dipping during the previous two months. The consumer confidence index had a reading of 125.9 for October, which is 12 points lower than it was at this time last year and also lower than September’s revised reading of 126.3.

While the index for consumers’ confidence in current labor market and business conditions increased from 170.6 in September to 172.3 in October, the index for the short-term outlook for these conditions dropped to 94.9 from 96.8 in the same timeframe.

When it comes to consumers’ opinions on whether jobs are accessible or difficult to obtain, the index increased from 33.5 in September to 35.1 in October; this appears to correspond with the current U.S. unemployment rate of 3.5%. Additionally, consumers don’t appear to be hopeful that more jobs will become available in the near future; those who said they expected fewer available jobs increased from 15.4% in September to 17.8% in October.

More Positive Outlook for Housing Market

Although consumer confidence in the U.S. has been shaky for the past few months, the country’s housing market has been taking steps forward. Specifically, contracts to purchase previously owned homes increased in September, marking the highest level in almost two years. There was also an increase in housing prices in August.

What’s more, the Federal Reserve cut interest rates once again – for the third time since July. These interest rate cuts appear to be helping the housing market find its footing. A recent Pending Home Sales Index report from the National Association of Realtors (NAR) increased to a reading of 108.7 in September, or 1.5% more than the previous month. This is the highest reading since December 2017, and the second month in a row with an increase.

In a press release, Lawrence Yun, NAR’s chief economist, said:

“Even though home prices are rising faster than income, national buying power has increased by 6 percent because of better interest rates. Furthermore, we’ve seen increased foot traffic as more buyers are evidently eager searching to become homeowners.”

After a month or two, pending home contracts normally turn into home sales, and the increase last month in pending sales could mean that an uptick in existing home sales is on the horizon. Compared to a year ago, pending home sales increased 3.9% in September.

However, trends in home purchase contracts tend to fluctuate depending on the region. For example, in September, the South saw home purchase contracts increase 2.6%, while the Midwest saw a 3.1% increase that month. In contrast, home purchase contracts decreased 1.3% in the West and dropped 0.4% in the Northeast in that same period.

While the lower mortgage rates appear to be boosting the U.S. housing market, a shortage of U.S. homes for sale is also limiting the market’s growth to some extent. Builders point to a lack of labor and land, which makes it challenging to increase housing starts, especially for homes priced below $200,000. This can be problematic, as that price point tends to be the most sought-after.

To combat a lack of housing inventory, Yun noted:

“In addition to boosting traditional home building, we should explore a greater utilization of modular factory constructed homes, converting old shopping malls or vacant office space into condominiums, permitting more accessory dwelling units, and other supply-increasing actions, in order to meet the rising demand for new housing.”

Likewise, home prices continue to rise, as the S&P CoreLogic Case-Shiller national house price index jumped 3.2% in August from a year ago after increasing 3.1% in July. That marked the first year-over-year forward momentum in home price growth rates since March 2018.

Consumer confidence and housing market trends in the U.S. appear to be in a kind of balancing act recently. Consumers are sharing their concerns about the economy in the coming months, but also seem to be feeling secure enough to consider purchasing real estate – possibly due to lower mortgage rates than have been seen since the economic downturn of 2008. A strengthening housing market could eventually lead to a much-needed boost in consumer confidence.

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