Housing Prices Up, but Consumer Confidence Down Again
Wednesday, September 30, 2009
Housing prices continued to climb but consumer confidence slipped, according to two reports released Tuesday, casting mixed signals about where the economy is headed.
The Standard & Poor's/Case-Shiller index, a closely watched measure of the housing market's health, showed that prices of single-family homes rose in most parts of the country for the third month in a row, up 1.6 percent in July from June. That's the biggest one-month jump in more than four years.
Meanwhile, a monthly survey by the Conference Board, a private research group, found that consumer confidence unexpectedly dipped in September after improving in August. The results, which largely capture consumer attitudes about the labor market, are "not as pessimistic as they were earlier this year," but they are "not very encouraging news" for the upcoming holiday spending season, Lynn Franco, director of the board's research center, said in a statement.
The housing market's demise in recent years has helped drag down consumer confidence and cripple the economy. Getting the housing market back on track and boosting consumer confidence are critical to a broad economic recovery.
Consumer spending makes up 70 percent of U.S. economic activity. As people feel more secure about jobs, they are likely to spend more money on goods and services, including big ticket items such homes.
In Thursday's report, consumer confidence fell to 53.1 in September from a revised 54.5 the previous month, largely reflecting fears about job security at a time when the unemployment rate is high and expected to edge up even higher.
The reading is well above its February low of 25.3, but it has stagnated since May, when it had reached 54.8, Abiel Reinhard, an analyst at J.P. Morgan Chase, said in a research report.
The survey numbers do not integrate attitudes about the housing market, but the survey does ask consumers if they plan to buy a home within the next six months.
The recent pickup in home sales and prices in most parts of the country "have not shown enough of a sustained improvement to have an impact on consumer confidence yet," said Brian Bethune, an economist at IHS Global Insight.
But it is noteworthy that many of the housing indicators are pointing in the same positive direction, several analysts said. They attribute the improvements to a temporary $8,000 tax credit for first-time home buyers, historically low interest rates, and rock bottom prices in many areas, especially regions plagued by foreclosures.
The home-price index released Tuesday broke out numbers for 20 major metropolitan areas and found that prices rose in 18 of them in July from June, including in the Washington region, where prices rose 1.8 percent. Prices fell only in Seattle and Las Vegas.
Even so, prices remain much lower than they were at the same time last year, down 13.3 percent in the 20-city index and 12.8 percent in the D.C. area.
If the first-time home buyer tax credit expires as scheduled on Nov. 30, many analysts expect a drop in home sales and prices, though they disagree on how big the drops will be. The situation looks even more dire once swelling unemployment numbers and related delinquencies and foreclosures are factored in.
Foreclosures tend to drag down prices. During the spring and summer, sales of foreclosed homes shrank as a share of total home sales. But many analysts say the share is likely to grow again, partly because of increasing unemployment.
Analysts say they are also bracing for lenders to resume sales of foreclosed homes. Many lenders had temporarily halted foreclosure sales as they waited to learn more about new government-led modification programs aimed at helping distressed borrowers.
Furthermore, economists are closely tracking a round of adjustable-rate mortgages that will reset in the next year or so, possibly to much higher rates. Many of those loans are held by credit-worthy prime borrowers as well as people who took out non-traditional loans that did not require verification of income.