Housing Sales Rise While Consumer Cinfidence Sags

Image by Smabs Sputzer via Flickr

Consumer Confidence fell this month for the first time in three months, reflecting Americans' concern for the economy, housing, and the financial system.

The reading isn't much of a surprise given our collective exposure to a near-constant stream of negative news. Before long, the reports become a self-fulfilling prophecy.

Despite falling confidence, however, the housing industry appears to be reviving. Sales of existing homes are on the rise and an increasing number of homes are under contract to sell. And, if these statistics seem out of place, consider the external forces that are accompanying this "down" economy:

• In some markets, home values have plummeted to early-2000 levels


• Government intervention has brought mortgage rates to near-5 percent


• Congress is pledging key support to housing and mortgage markets

These points can't be captured in confidence surveys which, by comparison, ignore facts and focus on Big Picture behavioral questions like "Do you think you'll be better off a year from now?" and "What's your attitude toward buying major household items?". It's useful information for economists, but not so much for home buyers.

Anecdotally, a lot of the country's housing markets have already started their recovery. Couple that with the natural momentum of Spring Buying and the stimulus package's proposed first-time home buyer tax credit and you can clearly see the disconnect.

Just because confidence is down doesn't mean that home prices will be, too.

Lower Gas Prices Helps Sell Houses

For the 78 consecutive days, gas prices fell nationwide through December 3rd. At $1.81 per gallon, the average price at the pump is less than half what it was at its peak in July.

And although gas prices vary by locale, the cost of a fill-up is worthy of national news.

The main reason why national gas prices matter is because of something called the Wealth Effect -- people's tendency to spend more money when they have a perceived feeling of being worth more.

Low gas prices can amplify the Wealth Effect, leading to higher levels of consumer spending nationwide -- the primary driver of the U.S. economy.

But more important than the Wealth Effect is the reverse Wealth Effect. That's when consumers have a perceived feeling of being worth less and their spending reflects it. This past summer is a terrific example of it.

Soaring gas prices, Wall Street troubles, and negative campaigning constantly reminded Americans of what was wrong with the economy. It follows, therefore, that retail sales figures plunged in September and October. Once the election passed, however, and gas prices fell, a gentle optimism returned.

Not surprisingly, consumer confidence rose in November.

All of this matters to real estate because as Americans regain their confidence and feel more "wealthy", they will be more likely to make "move up" purchase, buy new home appliances, and take other actions that propel the economy forward.

Oh, and mortgage rates trolling at 3-year lows certainly helps, too.

(Image courtesy: GasBuddy.com)