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Consumer confidence, home prices on the rise
Question of the Day
Consumer confidence perked up this month while home prices posted their third straight month of gains in the latest signs that the economy continues to slowly but steadily improve.
The Conference Board on Tuesday reported that its politically important consumer confidence index surged nearly 10 points to 70.1 — bringing it to where it was in February when the economy was enjoying a strong spell. Consumers surveyed this month were more optimistic about finding jobs and said they expect conditions to keep improving.
One reason for the more upbeat mood also emerged Tuesday: A third straight month of home price gains reported by Standard & Poor’s Corp. — confirming that a housing recovery that started this spring is firmly in place.
The S&P/Case-Shiller home price index for the top 20 U.S. metropolitan areas rose 1.6 percent last month, capping off a cumulative gain of 8 percent since the beginning of the year. The rise in home prices follows six years of deep losses that whacked a third off the value of most homes, the biggest asset for the American consumer.
"A growing feel-good factor is becoming evident among U.S. consumers," said Markit chief economist Chris Williamson, owing in part to the "long-awaited improvement in the housing market."
"The data augur well for consumer spending and the economy in general, and suggest that the U.S. is likely to remain something of a bright spot in an otherwise lackluster global economic environment," he said.
The uptick in consumer confidence also portends well for President Obama, as the index has often been a good predictor of presidential elections. However, despite this month’s improvement, the index remains low compared to levels of 95 or above that signaled the re-election of previous incumbents.
"The current consumer mood is one of the most buoyant seen since 2007," said Mr. Williamson, and "likely reflects the better economic news flow" this month.
One of the biggest economic news stories was the Federal Reserve's decision last week to pump more money into the mortgage market in an effort to bolster home prices, consumer confidence and wealth by driving record low mortgage rates even lower.
Mr. Williamson noted that the Fed is trying to reinforce a positive cycle within the housing market and broader economy that may now be under way.
"The additional Fed stimulus will no doubt provide further impetus to house price growth, which will in turn most likely feed through to another improvement in consumer sentiment via the positive effect on households' wealth, which will in turn hopefully help to sustain an increase in consumer spending toward the end of the year," he said.
Patrick Newport, economist at IHS Global Insight, said the ultralow mortgage rates engineered by the Fed have been a key ingredient in the housing market recovery this year.
Home sales also have been helped this year because fewer foreclosures and other distressed sales are depressing the market, he said. The result has been a modest rise in prices, which is encouraging and helpful for the two-thirds of Americans who own their homes.
"This increase in wealth should boost consumer spending a tad going forward," Mr. Newport said.
And as home prices gradually rise, fewer people will find themselves "underwater" with homes worth less than their mortgages. That, in turn "will increase labor mobility, since it will make it easier for some underwater homeowners to accept better paying jobs, even if it means moving," he said.
While consumers seem cheered by the recent improvements in the housing market, a prominent Fed official shook markets Tuesday by saying he doubts the Fed program announced last week to purchase $40 billion a month of mortgage securities will do much to help housing or the economy.
"I believe that increasing monetary policy accommodation is neither appropriate nor likely to be effective in the current environment," Federal Reserve Bank of Philadelphia President Charles Plosser told a gathering in Philadelphia.
Wall Street markets, which had been rallying on the upbeat morning news about the economy, plummeted on Mr. Plosser’s remarks in afternoon trading. The Dow Jones industrial average lost 101 points to close at 13,457.55, in its worst sell-off in three months.
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