Rising Home Prices Help Push Consumer Sentiment to Five Year High

by 13 Oct 2012

Confidence among U.S. consumers unexpectedly jumped in October to the highest level since before the recession began five years ago, in large part due to rising prices and expectations that they will continue to improve.

The Thomson Reuters/University of Michigan preliminary October consumer sentiment index increased to 83.1, the highest level since September 2007, from 78.3 the prior month. The gauge was projected to fall to 78, according to the median forecast of 71 economists surveyed by Bloomberg News.

The preliminary index exceeded all estimates by economists in the survey which ranged from 75 to 81, The index averaged 64.2 during the last recession and 89 in the five years leading up to the 18-month economic slump that began in December 2007.

Moreover, consumers expect the economy to continue to improve.  The Michigan index of consumer expectations six months from now, which more closely projects the direction of consumer spending, climbed to 79.5, the highest since July 2007, from 73.5 in September. The gauge of current conditions improved to 88.6 from 85.7.

“Low mortgage rates have reinvigorated home buying. Just as importantly, people’s reluctance to sell their current home to buy another home has also receded. Virtually every home buyer cited low mortgage rates and low prices. While those same low prices were seen as a disadvantage for home sellers, that disadvantage has shrunk to its lowest level in the past five years. While the indications for home sales are positive, the data indicate that the recovery in the housing market will be slow and halting,” the report said.

 

“The September improvement in confidence was due to more favorable prospects for the economy and for jobs during the year ahead. In addition, consumers reported some small gains in their financial situation.  The improvement was due to a reduction in their debt levels and an increase in the value of

their assets, primarily because of rising stock prices and home values..” said the survey’s chief economist, Richard Curtin.

 

 “It’s a combination of rising home prices and higher equities,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York, whose forecast was the highest in the Bloomberg survey. “Consumers have, all things considered, been spending reasonably well.”

On Friday, several major banks reported third quarter earnings, and JP Morgan Chase’s Chief Executive Jamie Dimon said in a statement, "We believe the housing market has turned the corner."

 

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