Consumer confidence soared to a five-year high this month as an improving job market and double-digit gains in home prices lifted consumer spirits, the Conference Board reported Tuesday morning.
The 7-point jump in the board’s closely-watched confidence index to 76.2 — a level not seen since February 2008 — indicates that consumers have put worries about budget cuts and the partisan standoff in Washington behind them, said Lynn Franco, economist at the business research group.
“Back-to-back monthly gains suggest that consumer confidence is on the mend and may be regaining the traction it lost due to the fiscal cliff, payroll-tax hike, and sequester,” she said.
One key reason consumers are feeling better is huge gains in house prices in the last year. Standard & Poor’s Corp. reported Tuesday that price gains in the top 20 U.S. metropolitan areas accelerated by nearly 11 percent over the last year, led by gains of more than 20 percent in the formerly depressed cities of Phoenix and San Francisco.
The U.S. has not seen double-digit home price gains since the height of the housing bubble in 2006.
“This house price appreciation is an important tailwind for the recovery,” said Harm Bandholz, economist at UniCredit Research. It not only lifts consumer spirits, it boosts consumer buying power through a “wealth effect” and prompts consumers to spend more, he said.
A sustained 10 percent rise in house prices this year could increase economic growth by a half-percentage point by spurring a surge in consumer spending, he said.
Moreover, it helps heavily indebted homeowners recover from their deep losses during the recession, as millions see their homes lifted out of “underwater” status and start to accumulate equity once again, he said.
Average home prices remain down nearly 30 percent from their peak, however, and are at 2003 levels in most parts of the country, according to S&P.