Weak consumer confidence restraining housing demand

Consumer confidence remained weak in August, with the Thompson Reuters release of the University of Michigan Consumer Sentiment survey inching up only slightly (1.1 points) to 68.9.  This follows a sharp (8.2 point) downturn in July, with the slowing economy and high unemployment rate leaving consumers uncertain about the future. While consumers were feeling a little more comfortable in their current situation, (the current situation index increasing 1.8 points to 78.3), they are less certain about the future (the future expectations index gaining only 0.6 points to 62.3).

The index of buying conditions for homes inched up in August to 154, with 76% of respondents identifying that they believe buying conditions to be good.  Low prices (65%) and low interest rates (46%) were the main reasons why they believe it was a good time to buy. While this indicates that consumers recognize that the housing market is experiencing the best housing affordability conditions of a generation, this is not being converted into home buying activity. Housing demand is very weak, with both new and existing home sales falling to record lows in July.

Consumers are unlikely to reenter the housing market until they are more confident of their financial situation and employment prospects.  However, the survey identifies that “… consumers expect lackluster income and jobs growth for an extended period of time ….”, and “… a slowdown in the pace of growth of consumption that will last into 2011.” 

With the weak economic conditions and high unemployment weighing on consumer confidence and restraining housing demand, we can expect only modest gains in housing demand over the remainder of 2010.  However, as the economic expansion gains steam and consumer confidence returns, we can expect substantial gains in housing demand in 2011 and 2012.

UMich & CFBD Consumer Sentiment



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