Consumer confidence rises in January

It illustrates that people have a more positive outlook, month on month, across a range of indicators including the economy, employment, household income and house prices. For the first time, the report also analyses a time series of house price sentiment, which is particularly important given the key role that expectations play in determining prices.

Latest Consumer Confidence Indicators

The latest figures show the following changes in people’s outlook for the next six months:

* A net seven percentage point rise in the proportion of people expecting the economy to improve

* A net three percentage point rise in the proportion of people positive about the future number of jobs available

* A net three percentage point climb in those expecting their household income to rise

In addition, current spending confidence has risen. The proportion stating that it is currently a good time to make a major purchase such as a house or car has risen by a net 10 percentage points, and the equivalent figure regarding household appliances is also 10 percentage points.

House Price Expectations in January

The latest figures show a three percentage point rise in house price confidence. 34% of people now expect house prices to rise over the next six months, whilst only 19% expect them to fall — 47% expect no change. This equates to a net positive house price confidence balance of 15% (34 minus 19), which is up from 12% last month.

As shown on the chart, the proportion expecting values to rise is unchanged this month at 34%, whilst the share expecting a fall dropped from 22% to 19%. The decrease in the proportion expecting falling prices drove this month’s three percentage point increase in house price confidence.

House Price Expectations Over Time

Seven months ago, in June 2004, two-thirds of people (64%) expected house prices to rise over the following six months and only one in fourteen (7%) expected a fall: a net positive house price confidence balance 57%. Subsequently, confidence fell sharply from June to November with the proportion expecting rises halving and the share expecting falls trebling (from 64% to 33% and from 7% to 23%, respectively). Net house price confidence reached a low of 10% in November.

Two key factors drove this fall in house price confidence. First, four interest rate rises in the eight months to June 2004, and the expectation of several further rises led to concerns among consumers about affordability. And second, a much publicised speech by the Governor of the Bank of England on 14th June warning of possible house price falls and frequent warnings from commentators in the second half of 2004 of an imminent crash, led to uncertainty over house prices.

However, following six months of broadly stable house prices and with the possibility that interest rates have peaked, sentiment appears to have bottomed out. This month’s rise in house price sentiment is the second in succession illustrating a degree of confidence returning to the housing market.

Commenting on the figures Stuart Bernau, Nationwide's executive director, said:

"Consumer confidence remains buoyant and has risen across a range of indicators. In the past two months, overall confidence in the housing market has improved with less people feeling pessimistic. Nationwide has consistently believed that the housing market would experience a soft landing and these figures indicate that this view is supported by consumers. Nationwide believes that we’re set for a period of more stable prices with values rising by around two percent in 2005."